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The 2010 report on R&D in ICT in the European Union Authors: Geomina Turlea, Daniel
The 2010 report on R&D in ICT in the European Union Authors: Geomina Turlea, Daniel

The 2010 report on R&D in ICT in the European Union

Authors:

Geomina Turlea, Daniel Nepelski, Giuditta de Prato, Sven Lindmark, Andrea de Panizza, Lucio Picci, Paul Desruelle, David Broster

2010

Giuditta de Prato, Sven Lindmark, Andrea de Panizza, Lucio Picci, Paul Desruelle, David Broster 2010 EUR

EUR 24320 EN

The mission of the JRC-IPTS is to provide customer-driven support to the EU policy-making process by developing science-based responses to policy challenges that have both a socio-economic as well as a scientific/technological dimension.

as well as a scientific/technological dimension. European Commission Joint Research Centre Institute for

European Commission Joint Research Centre Institute for Prospective Technological Studies

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EUR 24320 EN Catalogue number: LF-NA-24320-EN-C ISSN 1018-5593 ISBN 978-92-79-15542-0

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© European Union, 2010

Reproduction is authorised provided the source is acknowledged Printed in Spain

The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union Acknowledgements This report was produced

Acknowledgements

This report was produced by the Information Society Unit at the European Commission’s Joint Research Centre - Institute for Prospective Technological Studies (IPTS), 1 for DG Information Society & Media. It is part of the project: “Prospective Insights on R&D in ICT” (PREDICT) which is jointly funded by DG Information Society & Media and JRC-IPTS.

The authors wish to thank and acknowledge the following experts and colleagues for their longstanding support, valuable input and comments: Vladimir Lopez-Bassols (OECD); Raymond Wolfe and John Jankowski (NSF); Alain Puissochet (APE); Reni Petkova, Håkan Wilén and Albrecht Wirthman (Eurostat); Khalil Rouhana, Sofie Nørager, and Alain Stekke (DG Information Society & Media); and Hector Hernandez and Alexander Tübke (JRC-IPTS).

Finally, thorough checking and editing of the text by Patricia Farrer is gratefully acknowledged.

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The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union Table of Contents Acknowledgements 3

Table of Contents

Acknowledgements

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List of Figures

8

List of Tables

10

Executive Summary

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1

Introduction

19

PART 1: General Analysis of ICT R&D in the European Union

21

2 The ICT sector and ICT R&D in the EU economy

21

 

2.1 Overview of employment and value added in the EU ICT sector

22

 

2.2 Recent global trends in ICT industries

26

 

2.3 R&D expenditure in the ICT sector in the EU

27

 

2.4 R&D employment in the ICT sector in the EU

29

 

2.5 Conclusions

30

3 R&D in the ICT sector from an international perspective

31

3.1 Business expenditure in ICT R&D (ICT BERD)

31

3.1.1 The contribution of the ICT sector to total BERD intensity (BERD/GDP)

31

3.1.2 Economic weight and R&D intensity of the ICT sector

33

3.1.3 ICT BERD growth: international comparison

34

3.2 Government financing of ICT R&D (ICT GBAORD)

35

3.3 Contribution of the ICT sector R&D to the Barcelona target (ICT GERD)

37

3.4 Conclusions

41

4 R&D in ICT by ICT sub-sector

43

4.1 Economic weight and BERD

43

4.2 BERD growth: comparison by ICT sub-sector

44

4.3 ICT R&D employment by sub-sector

45

4.4 The R&D intensity of the ICT sub-sectors from an international perspective

46

4.5 The weight of the ICT sub-sectors from an international perspective

47

4.6 Conclusions

48

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5 R&D in the ICT sector by EU Member State (ICT BERD, ICT GBAORD)

49

5.1 National shares in ICT BERD

49

5.2 The contribution of ICT to total BERD intensity by Member State

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Table of contents

5.3 The weight of the ICT sector in the economy by Member State

51

5.4 Change in the weight of the ICT sector in the economy by Member State

52

5.5 The BERD intensity of the ICT sector by Member State

53

5.6 Change in the BERD intensity of the ICT sector by Member State

53

5.7 Government financing of ICT R&D by Member State

56

5.7.1 National shares in ICT GBAORD

56

5.7.2 ICT GBAORD intensity by Member State (ICT GBAORD/GDP)

56

5.8 Conclusions

58

6 ICT sector company R&D

59

6.1 ICT sector company R&D investments in a global perspective

60

6.1.1 Comparing company R&D investments of ICT and non-ICT sectors across world regions

60

6.1.2 Trends in R&D investments of the overall ICT sector across world regions

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6.2 Country-level perspective

63

6.3 ICT sub-sector analysis

67

6.4 R&D in the IT Components sub-sector

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6.5 R&D in the Computer Services and Software sub-sector

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6.6 R&D in the Telecom Equipment sub-sector

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6.7 Summary and conclusions

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7 ICT patents in the European Union

79

7.1 Introduction

79

7.1.1 Methodology update

79

7.1.2 Main observations

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7.2 ICT patenting activity by EU and US inventors

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7.2.1 ICT and total patenting activity: EU and US inventors

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7.2.2 ICT patenting activity by technological classes: EU and US inventors

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7.2.3 ICT and total patenting activity per capita: EU and US inventors

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7.3 ICT patenting activity by EU Member State inventors

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7.3.1 Member States ICT patenting activity – absolute terms

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7.3.2 Member States ICT patenting activity – EU shares

86

7.3.3 Share of ICT in total patenting activity by EU Member States, EU and US inventors

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7.3.4 ICT and total patenting activity per inhabitant: EU Member States, EU and US inventors

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7.3.5 ICT patenting activity in comparison to business R&D expenditures

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7.4 Conclusions

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PART 2: Thematic Analysis: Trends in the Internationalisation of R&D in ICT

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The concept of the internationalisation of inventive activity

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8.1

Internationalisation of economic activity

95

 

8.1.1

Internationalisation of production

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The 2010 report on R&D in ICT in the European Union

 

8.1.2

Internationalisation of R&D

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8.2

Characterisation of internationalised R&D

97

 

8.2.1 Drivers and barriers to R&D internationalisation

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8.2.2 R&D internationalisation strategies

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9 Empirical evidence of internationalisation of ICT R&D

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9.1 Global distribution of ICT R&D sites

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9.1.1 Introduction

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9.1.2 Global distribution of ICT R&D sites

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9.1.3 Internationalisation of R&D sites

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9.1.4 Summary of main findings

106

9.2 Empirical evidence of internationalisation of EU inventive activity in ICT based on patent statistics

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9.2.1 The internationalisation of the EU ICT inventive activity

110

9.2.2 Internationalisation of EU ICT and other technologies inventions

111

9.2.3 The internationalisation of the EU and the US inventive activity

113

9.2.4 Inventive collaboration between the EU and the US

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9.2.5 Collaboration between the EU and Asia and between the US and Asia

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9.2.6 Summary of main findings

120

9.3 Conclusions

121

10 Conclusions

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10.1 The EU ICT sector and ICT R&D in the EU economy

123

10.2 International perspective

123

10.3 ICT R&D by Member State

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10.4 ICT sector company R&D

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10.5 ICT patents in the EU

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10.6 Internationalisation of ICT R&D

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10.7 Broader observations

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Annex 1 – Definition of the ICT sector

129

Annex 2 – Description of R&D intensity indicators

133

Annex 3 – Methodology for BERD data

135

Annex 4 – Methodology for value added data

137

Annex 5 – Methodology for R&D employment data

139

Annex 6 – Methodology for GERD and GBAORD data

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Annex 7 – Methodology for company data

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Annex 8 – Methodology for patent data

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Annex 9 – JRC-IPTS ICT R&D Location Database

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Annex 10 – Patent data and internationalisation measures

157

Useful References

163

Glossary

169

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Table of contents

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List of Figures

Figure 1:

BERD growth (%) and number of researchers (thousands) by ICT sub-sector and for the ICT sector, 2002-2007

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Figure 2:

R&D investments in the ICT sub-sectors by EU, Japanese, US and Rest of the World (RoW) ICT Scoreboard companies, 2004-2007 (e million)

15

Figure 2-1:

Employment and value added in the EU 27 ICT sector, 1999-2007

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Figure 2-2:

Country shares (%) in the EU ICT sector value added and employment:

 

Manufacturing, Services and Total, year 2007

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Figure 2-3:

The dynamics of employment, value added and apparent labour productivity in EU and US ICT sector: % change from 2000 to 2006

26

Figure 2-4:

Worldwide semiconductor market by region, 1990–2010

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Figure 2-5:

Share of ICT in EU total BERD, Year 2007

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Figure 2-6:

Researchers in the EU ICT sector: number (FTE) and % of total economy 2002-2007

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Figure 3-1:

Contribution of the ICT sector to total BERD intensity (BERD/GDP): 2002-2007

32

Figure 3-2:

Average annual ICT BERD Growth, 2005-2007, percentage changes; data computed using GDP deflators

34

Figure 3-3:

Public expenditures in R&D. EU and US (Billion Euros PPP), 2007

36

Figure 3-4:

Public expenditures in R&D as share of GDP. EU and US, 2007

37

Figure 3-5:

Breakdown of GERD

38

Figure 3-6:

The Barcelona target - total GERD and ICT GERD as % of GDP, EU and US, 2005 and 2007

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Figure 3-7:

Breakdown of ICT GERD for EU and the US (Billion Euros), 2007

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Figure 4-1:

Real growth of ICT BERD in the EU, values deflated with the GDP deflator

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Figure 4-2:

EU ICT sector researchers and R&D employment intensity by industry, 2002-2007

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Figure 4-3:

ICT sub-sector R&D intensities (BERD/VA in 2007)

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Figure 4-4:

Economic weight of the ICT sub-sectors % of sub-sector’s value added in GDP, 2007

47

Figure 5-1:

Distribution of ICT BERD shares in EU countries % of total EU ICT BERD, 2007 (Total EU BERD = €34.1 Bill PPP)

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Figure 5-2:

Contribution of ICT sector to total BERD intensity (BERD/GDP) by Member State – EU, 2007

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Figure 5-3:

Weight of the ICT sector in the economy of EU countries ICT VA / GDP, 2007

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Figure 5-4:

Average yearly change in GDP, in the value added of the ICT sector and in the weight of the ICT sector in the economy of EU countries, 2007-2002

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Figure 5-5:

ICT BERD Intensities in EU countries, 2007 ICT BERD/ICT value added

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Figure 5-6:

The dynamics ICT BERD intensities in the EU:

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A)

ICT BERD as a % of ICT value added in 2002 and yearly average change

2007-2002, in percentage points

 
   
 

B)

BERD percentage changes (total and ICT sector, left scale), and changes in the

share of ICT sectors in total BERD (percentage points – right scale), 2007-2002

 

Figure 5-7:

Distribution of ICT GBAORD in EU countries % of total EU ICT GBAORD, calculated on PPP values, 2007

56

Figure 5-8:

Share of ICT GBAORD in GDP – EU Member States and the US, 2006 and 2007

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The 2010 report on R&D in ICT in the European Union

Figure 6-1:

R&D investments in the ICT sector and non-ICT sectors by EU, US, Japanese and RoW ‘top R&D investing’ companies, in millions of € (2007)

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Figure 6-2:

ICT-sector and non-ICT sector ‘top R&D investing’ company R&D Investment as a percentage of total R&D investment, per world region, in % (2007)

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Figure 6-3:

R&D investments in the ICT-sector by EU, Japanese, RoW and US ICT Scoreboard companies, in millions of € (2004-2007)

63

Figure 6-4:

R&D investments by ICT Scoreboard firms per country of registered headquarters in the EU and the RoW (excluding the US and Japan) in millions of €, 2004-2007

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Figure 6-5:

R&D investments in the ICT sub-sectors by EU, Japanese, RoW and US ICT Scoreboard companies, 2004-2007, € million

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Figure 6-6:

R&D intensities (R&D investment / net sales) in EU, US, Japanese, and RoW ICT Scoreboard companies, 2007 (%)

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Figure 6-7:

R&D investments in the IT Components sub-sector as divided into Electronic Equipment and Semiconductors, by EU, Japanese, RoW and US ICT Scoreboard

 

companies, 2004-2007, € million

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Figure 6-8:

R&D investments in the Computer Services, Internet and Software ICB subsectors by EU, Japanese, RoW and US ICT Scoreboard companies, 2004-2007, € million

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Figure 6-9:

R&D investments in the Telecom Equipment sub-sector by EU, Japanese, RoW and US ICT Scoreboard companies, 2004-2007, € million

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Figure 7-1:

ICT and total priority patent applications by EU and US inventors

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Figure 7-2:

Share of ICT priority patent applications, by ICT class, EU and US inventors

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Figure 7-3:

Total and ICT applications per million inhabitants, by EU and by US inventors

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Figure 7-4:

Contribution (%) to total ICT EU priority patent applications – inventor criterion

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Figure 7-5:

Share of ICT applications in total applications – inventor criterion

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Figure 7-6:

ICT applications per million inhabitants – inventor criterion

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Figure 7-7:

ICT applications/GDP vs. ICT BERD/GDP. Top 10 ICT patenting EU Countries and the US. Inventor criterion, 2006

89

Figure 9-1:

Shares of collaboration between EU and non-EU inventors, co-ownership and cross-border ownership of inventions in the total number of EU ICT inventions,

 

1990-2006

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Figure 9-2:

Shares of inventor collaboration and co-ownership of inventions in the total number of EU ICT and all technologies inventions, 1990-2006

111

Figure 9-3:

Shares of cross-border ownership of ICT vs. all technologies inventions, EU, 1990-2006

112

Figure 9-4:

Shares of inventor collaboration and co-ownership of inventions, EU vs. US, ICT inventions, 1990-2006

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Figure 9-5:

Shares of cross-border ownership of ICT inventions, EU vs. US, 1990-2006

115

Figure 9-6:

Shares of international inventions with EU and US collaboration, ICT inventions,

1990-2006

116

Figure 9-7:

Shares of cross-border ownership of ICT inventions, EU and US, 1990-2006

117

Figure 9-8:

Shares of inventor collaboration and co-ownership of inventions, EU-Asia versus US-Asia, ICT inventions, 1990-2006

118

Figure 9-9:

Shares of cross-border ownership of international ICT inventions, EU-Asia versus US-Asia, 1990-2006

119

Figure 1, Annex 4:

Valuation of value added

137

Figure 1, Annex 10:

Relations among the different types of internationalisation

157

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Table of contents

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List of Tables

Table 1:

ICT BERD in relation to GDP broken down into ICT sector size and R&D intensity factors, 2007

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Table 3-1: GDP, GERD, and ICT GERD and its components (billion e PPP), EU and US, 2007

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Table 3-2: ICT BERD broken down into size and intensity factors, 2007

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Table 4-1: Turnover, employment, value added, BERD for the ICT sub-sectors, 2007

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Table 6-1: Distribution of ICT Scoreboard companies by sectors and regions of registered headquarters (2007)

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Table 6-2: Top 20 R&D investing ICT sector companies in 2007

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Table 6-3: Top 20 R&D investing ICT sector companies per absolute growth in nominal terms

 
 

(2004-2007)

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Table 6-4: Global ICT Scoreboard R&D investment per ICT sub-sector and absolute growth in nominal terms, (2004-2007)

68

Table 6-5: Top 10 US, EU, Japanese and RoW R&D investing companies in IT Components

 
 

(2007)

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Table 6-6: Top 10 EU and US R&D investing companies in the Computer Services and Software sub-rector, plus 5 Japanese and RoW companies (2007)

74

Table 6-7: Top 10 R&D-investing companies in the Telecom Equipment sub-sector in the US, the EU, and in Japan and the RoW combined (2007)

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Table 7-1: ICT priority patent applications by EU Member State, 2006

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Table 9-1: Global distribution of ICT R&D sites by location and ownership, 2007/08, in %

103

Table 9-2: Distribution of ICT R&D sites by company HQ location, 2007/08, in %

103

Table 9-3: Location of R&D sites by company HQ location, 2007/08, in %

104

Table 9-4: Share of international R&D sites at country and region level, 2007/08, in %

106

Table 1, Annex 7:

Summary of the major methodological differences between Scoreboard and national BERD data

147

Table 1, Annex 9:

List of companies included in the JRC-IPTS ICT R&D Location Database by region of headquarter origin

155

Table 1, Annex 10: Fractional counts of three fictitious patents

157

Table 2, Annex 10: Computation of measures of internationalisation of three fictitious patents

161

The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union Executive Summary Introduction This report

Executive Summary

Introduction

This report provides an analysis of R&D investments in the EU Information and Communication Technology sector (ICT sector 2 ). The research and analysis was carried out by the Information Society Unit at JRC-IPTS 3 in the context of PREDICT, 4 a research project co- financed by JRC-IPTS and the Information Society & Media Directorate General of the European Commission.

This report combines in a unique way three complementary perspectives: national statistics (covering both private and public R&D expenditures), company data, and technology- based indicators. It relies on the latest available

official statistics delivered by Member States, Eurostat and the OECD. 5 This data still contains gaps and where this is the case, rigorous cross- checking and estimating methods have been applied by JRC-IPTS to provide the study with the necessary set of data. 6

The current analysis includes data up to 2007, 7 and, this being the third report of a series published annually, 8 it now covers the period of ICT sector growth that took place between two important financial events: the ‘dot.com’ crisis and the current financial and economic crisis.

This multiannual analysis confirms the consistency of the data over time and offers a

Important note

Official statistical data is produced on an on-going basis by the relevant international organisations (Eurostat, OECD, US National Science Foundation (NSF)). It is normal to observe minor adjustments in the available data from one year to another. US R&D data has been nevertheless subject to a major revision by the NSF which was published by OECD in late 2009 (OECD 2009a). The revision follows the decision of the NSF to change its method for classifying industrial R&D, beginning with reference year 2004. The major impact of this revision is a 40% increase in the amount of R&D allocated to the manufacturing sector (i.e. in pharmaceuticals and ICT), mainly at the expense of the wholesale trade industries. Therefore R&D data for the US presented in this report is not directly comparable with the statistical data used in previous editions of the report. The current revision does not affect the overall trends observed before, or the relevance of our previous conclusions (see Annexes 3 and 6).

2 The ICT sector includes five NACE Rev.1.1 classes, also called sub-sectors:

• Three ICT manufacturing sub-sectors (IT equipment; IT Components, Telecom and Multimedia Equipment; and Measurement Instruments)

• Two ICT services sub-sectors (Telecom Services, and Computer Services and Software). Where indicated, the Telecom Services sub-sector also includes Postal Services (for a formal definition of the ICT sector see Chapter 2).

3 The Institute for Prospective Technological Studies (IPTS) is one of the seven research institutes of the European Commission’s Joint Research Centre (JRC).

5 Namely the following sources:

• For R&D data: ANBERD 2009 (OECD), R&D Statistics (Eurostat), EU industrial R&D Investment Scoreboard (JRC-IPTS) • For supporting data: Structural Business Statistics SBS, National Accounts, Trade, Price and GDP data (Eurostat), EU KLEMS database (Groningen University), PATSTAT (European Patent Office), Amadeus database (Bureau Van Dijk) as well as several other external or in-house resources.

6 PREDICT’s methodology is summarised in the report introduction and described in detail in the annexes.

7 For most of the data, 2007 figures were the latest available in December 2009 when the report was prepared; for patent data, latest year available was 2006.

8 The 2009 report is available at http://ipts.jrc.ec.europa. eu/publications/pub.cfm?id=2259 and the 2008 report at

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Executive Summary

privileged view of the major ICT R&D trends across those years (2002 – 2007). The following main observations can be made:

• Worldwide, the ICT industry maintains its position as the leading R&D investing sector, due to its dynamism, its innovative capacity and the fact that it supplies general purpose technology to the rest of the economy (see Chapter 2).

• Europe has been, and is still, lagging behind

its main competitors in terms of ICT R&D

investment (see Chapter 3) and ICT R&D patenting (see Chapter 7).

• This lag is largely due to the size of European ICT companies. For example, as compared with US ICT companies, they are smaller and did not grow as fast in the last decades. This is a particular weakness in the most promising segments, for example in the Computer Services and Software ICT sub- sector, where EU Internet companies have failed so far to achieve a truly global scale. Hence, a growing part of the R&D gap can

be observed in this segment (see Chapters 4

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and 6).

• Europe is an important location for foreign ICT R&D investment, but international cooperation in R&D is evolving from

a dominant EU-US relation to global

networking where the US-Asia relation

is taking a growing share. Here also, it

seems that US companies are able to grasp opportunities more rapidly than EU ones (see Chapters 8 and 9).

The detailed and comprehensive analyses contained in this report are particularly relevant for policy makers since:

• The ICT industry and ICT-enabled innovation in non-ICT industries and services make an increasingly important contribution to the economic growth of advanced economies.

• The ICT sector was highlighted in the EU Lisbon Objectives, and has retained its prominence in the recently proposed Europe 2020 Strategy. 9

• The ICT sector is a significant contributor to the ambition of achieving the target of investing 3% of GDP in R&D in the EU – a target which is reiterated in the proposed Europe 2020 Strategy.

These characteristics have provided the rationale for this research work and the ambition to gain a deeper understanding of the dynamics of research in the ICT industrial sector which, in turn, can provide important policy insights and options.

Main findings of this report

This executive summary aims to highlight the most important findings of this year’s report and these are fully elaborated in the subsequent chapters. The findings are consistent and coherent with those of the two previous reports, thus demonstrating the persistence of the observed trends and also indicating the robustness of the analysis and methodologies.

The importance of the ICT sector

ICTs are highly pervasive technologies and the ICT sector underpins growth in all sectors of the economy. In the EU, the US, and Japan, the ICT sector is by far the largest R&D-investing sector of the economy. In 2007, while the ICT sector represented 4.8% of GDP (€540 billion) and 3% of total employment in the EU (6.1 million employees), it accounted for 25% of overall business expenditure in R&D (BERD) and employed 32.4% of all business sector researchers (see Chapter 2).

9 Proposed in March 2010 by the European Commission. See: http://ec.europa.eu/eu2020

The 2010 report on R&D in ICT in the European Union

The time-series (2002 to 2007) show that EU ICT BERD remained stable (see blue line in Figure 1, left) with an ICT BERD intensity between 6 and 6.5% of ICT sector value added. Whilst this is far above the EU 3% target, it is well below US ICT BERD intensity (see Table 1 below). It does however demonstrate the importance of the sector in understanding R&D expenditures, dynamics and performance in the EU.

Not only does the ICT sector lead other economic sectors in terms of BERD, it also provides them with productivity-enhancing technology. Hence it contributes directly and indirectly to increasing labour productivity and overall EU competitiveness. 10

Further, additional evidence of the importance of the sector is provided by the fact that 20% of all EU patents are in ICT technologies (see Section 7.2).

The importance of ICT services, and in particular of the Computer Services and Software sub-sector

In 2007, total ICT sector employment exceeded for the first time its previous peak level of 2001. It therefore took six years for total ICT sector employment to recover from the effects of the dot.com crisis, with an important redistribution of jobs from ICT manufacturing 11 to ICT services 12 sub-sectors (see Section 2.1).

10 See the March 2009 European Commission Communication: “A Strategy for ICT R&D and Innovation in Europe: Raising the Game”, COM(2009)116, available at: http://ec.europa.eu/information_society/tl/research/ documents/ict-rdi-strategy.pdf 11 ICT manufacturing includes three sub-sectors: IT Equipment; IT Components, Telecom and Multimedia Equipment; and Measurement Instruments. 12 ICT services include two sub-sectors: Telecom Services, and Computer Services and Software (where indicated, the Telecom Services sub-sector also includes Postal Services).

From 1999 to 2007, employment increased by 27% in ICT services sub-sectors while it decreased by 10% in ICT manufacturing sub- sectors. This brought the share of ICT services employment to 68% of the total ICT sector. In 2007, the Computer Services and Software sub- sector alone accounted for half the total ICT employment in Europe.

A similar structural shift occurred for ICT value added with a steady increase of the share of the ICT services sub-sectors’ value added. ICT Services accounted for more than 75% of total ICT value added in 2007, with the Computer Services and Software sub-sector alone producing 42% of the ICT sector value added.

The Computer Services and Software sub- sector is also the only EU ICT sub-sector with a strong and sustained increase in both BERD and employment of researchers: from 2002 to 2007, BERD increased by 40% (see orange line in Figure 1, left) and employment of researchers by 56%. In 2007, the Computer Services and Software sub- sector became for the first time the leading ICT sub-sector in terms of employment of researchers (see orange line in Figure 1, right).

International comparisons

The US, Japan, Taiwan and Korea are investing significantly more in ICT R&D than the EU (when comparing ICT R&D over GDP ratios). Although the EU and the US have roughly

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Executive Summary

Executive Summary Figure 1: BERD growth (%) and number of researchers (thousands) by ICT sub-sector and

Figure 1:

BERD growth (%) and number of researchers (thousands) by ICT sub-sector and for the ICT sector, 2002-2007 13

by ICT sub-sector and for the ICT sector, 2002-2007 1 3 equivalent GDPs, the US levels

equivalent GDPs, the US levels of both business ICT R&D expenditure (ICT BERD) and public ICT R&D funding (ICT GBAORD 14 ) are double those of the EU. These points are further elaborated below from three perspectives:

In 2007, ICT BERD was €36.6 billion in the EU, and €83.8 billion in the US. 15 This represents a contribution in relation to GDP of 0.30% for the EU, versus 0.72% for the US. As can be seen in Table 1, this difference can be attributed to both a smaller relative size of the ICT sector in the economy and to a lower R&D intensity of the ICT sector. This difference is even bigger when comparing the EU to Japan, Korea and Taiwan. Analysis of global R&D investments made by ICT Scoreboard companies 16

R&D investments made by ICT Scoreboard companies 1 6 14 13 Source: IPTS estimates, based on
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14

13 Source: IPTS estimates, based on data from Eurostat, OECD, EU KLEMS and national statistics. 14 ICT GBAORD: An estimation of Government Budget Appropriations or Outlays for R&D by Socio-economic Objectives (GBOARD) targeting ICT R&D.

15 Using Purchasing Power Parity (PPP) exchange rates.

16 The ICT Scoreboard includes the 453 ICT companies with the largest R&D budgets globally. It is extracted from the EU industrial R&D Investment Scoreboard, available

produces correlated results. In 2007, top R&D-investing EU ICT companies invested about half the total amount invested by their US counterparts (€27.6 billion vs. €58.8 billion) (see Section 6.1).

• Public funding figures also indicate that, compared to the US, EU governments fund a smaller share of ICT R&D in relation to total public funding for R&D. In 2007, EU ICT GBOARD represented 6% of total public funding for R&D in the EU (€5.3 billion), while it was close to 9% in the US (€10.4 billion) (see Section 3.2).

• Patenting activity also appears to be notably more specialised in ICT in the US than it is in the EU. In 2006, 50% of all patents

at http://iri.jrc.ec.europa.eu/research/scoreboard_2008. htm. In the Scoreboard, the term ‘EU company’ concerns companies whose ultimate parent has its registered office in a Member State of the EU. Likewise, ‘non-EU company’ applies when the ultimate parent company is registered outside of the EU.

The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union Table 1: ICT BERD in

Table 1: ICT BERD in relation to GDP broken down into ICT sector size and R&D intensity factors, 2007 17

ICT BERD in the economy (ICT BERD/GDP)

Size of ICT sector in the economy (ICT VA/GDP)

ICT sector R&D intensity (ICT BERD/ ICT VA)

EU

0.30%

4.8%

6.2%

US

0.72%

6.4%

11.2%

Japan

0.87%

6.8%

12.8%

Korea

1.30%

7.9%

16.5%

Taiwan

1.31%

10.6%

12.3%

applied for by US-based inventors 18 were in ICT technologies vs. only 20% of all patents applied for by EU-based inventors (see Section 7.2).

In terms of R&D invested in ICT sub- sectors for the period 2004 to 2007, analysis of ICT Scoreboard companies shows that R&D investments by EU companies have been growing –in some case strongly- in all ICT sub-sectors. 19

However, at the same time, the ICT Scoreboard also shows that US companies clearly outperform EU companies in several ICT sub-sectors that are key to the competitiveness of the EU industry, notably Computer Services and Software (see Figure 2). A further example of EU weaknesses in growing markets is that in the Internet industry, where companies like Google or Yahoo are dominant, no EU company had invested sufficiently in R&D in 2007 in order to make it to the ICT Scoreboard listing! (see Section 6.5).

Figure 2:make it to the ICT Scoreboard listing! (see Section 6.5). R&D investments in the ICT sub-sectors

R&D investments in the ICT sub-sectors by EU, Japanese, US and Rest of the World (RoW) ICT Scoreboard companies, 2004-2007 (e million) 20

ICT Scoreboard companies, 2004-2007 ( e million) 2 0 17 Source: IPTS estimates based on data

17 Source: IPTS estimates based on data from Eurostat, OECD, EU KLEMS.

18 Patent priority applications by inventors physically based (residing) in the US.

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Executive Summary

Internationalisation of ICT R&D

ICT R&D is an international endeavour that is increasingly widely distributed globally. Analyses of a combination of indicators (global distribution of corporate R&D sites of major ICT companies, 21 and international patents in ICT technologies 22 - see Chapter 9) indicate that the EU remains an important location for ICT R&D – for both EU and non-EU companies - but it is also noted that Asia is gaining importance in this respect.

International patent analysis also indicates that US companies have taken a ‘first mover’ advantage in developing ICT R&D collaborations with Asia. For example the share of the ICT inventions developed in Asia owned by US patent applicants grew from almost zero in the early 1990’s to 1.5% in 2006, while the share owned by EU patent applicants merely started growing in the late 1990’s and reached only 0.5% in 2006 (see Section 9.2). 23

ICT R&D distribution across EU Member States

There are very large differences in ICT R&D activity between the 27 EU Members States. The EU’s three largest economies (Germany, France and the UK), and to some extent the next two (Italy and Spain), dominate and set the average EU trend. When the size of the respective economies is taken into account, the best performers are Nordic countries. The Member States that have experienced the largest increases in ICT BERD in recent years are the new EU Member States along

Based on the IPTS ICT R&D Location Database. This dataset includes location information for over 1,800 R&D sites that, in 2007 and 2008, belonged to 80 multinational companies that are considered to be major semiconductor influencers. Among the companies included in the sample are, for example, Microsoft, IBM, Sony and Siemens. The full list of companies included in the database is provided in Annex 9. 22 This report calls ‘International patents’ those patents which have inventors or applicants from different regions of the world (e.g., from the US and the EU), but not intra-EU patents with only inventors or applicants from different EU Member States.

23 Estimated by analysing priority patents applications filed in 2006 to all European national patent offices, the EPO and the USPTO - see Section 9.2.5.

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with Portugal and Spain (see Chapter 5). More specifically:

• In 2007, Germany, France, the UK, Italy and Spain accounted for more than 70% of total ICT sector value added and 2/3 of its employment. In ICT manufacturing, Germany alone contributed 27% of EU employment and 30% of value added. In ICT services, the UK remains the leading country for employment (19% of EU employment) and a clear leader in value added terms (25% of EU value added). These five countries together contribute more than 2/3 of EU ICT BERD, and they generate more than 75% of all ICT patents (Germany generates almost 45% of these).

Finland and Sweden invest the largest amount in ICT BERD in relation to their GDP (and above the US level). In 2007, Finland and Sweden were also (with Spain) the countries with highest levels of ICT public funding 24 in relation to their GDP (comparable to US level). Finland, Germany, the Netherlands and Sweden are the only four Member States with ratios of ICT patent applications in relation to GDP either above or close to the US ratio (although the ratios of Sweden and the Netherlands have dipped in recent years). Finland and the Netherlands have the highest degree of specialisation in ICT patenting (i.e. their share of ICT patent applications amongst total patent applications).

• In spite of strong ICT BERD increase, however, the new EU Member States still have very low ICT BERD in relation to their GDP. They also have very low ICT GBAORD in GDP. Although several new Member States, such as Hungary, the Czech Republic and Poland recorded spectacular increases in ICT manufacturing employment, deeper analysis shows that these countries are still hosting rather low value added activities.

24 Measures based on an estimate of ICT GBAORD.

The 2010 report on R&D in ICT in the European Union

Broader observations

Our analyses show that EU ICT R&D investment is less than half of that in the US. Moreover, due to its prominence in overall R&D investments, the ICT investment ‘gap’ accounts for a substantial part of the difference between EU and US R&D investment. A number of possible contributory factors are elaborated in the paragraphs below.

Issues of economic and industrial composition

As this series of reports have indicated, the economic structure (size of the ICT sector in the total economy), the composition of the industry (share of each ICT sub-sector), and the overall size and number of ICT companies (and particularly the scarcity of large, globally operating EU companies - with the exception of Telecom Services sector companies) largely explain the investment differences. However, our analysis also shows that EU ICT companies’ R&D investments are roughly equivalent to those made by comparable US firms in comparable sub-sectors. 25 These investments are driven by an industrial logic where, in order to remain competitive, the companies have to make an equivalent investment in R&D.

Issues of growth

Company data analysis indicates that the EU does not generate as many large new and innovative ICT companies as the US (and may additionally be threatened by emerging competitors from China and India). This appears particularly true in a key growth segment: Computer Services and Software. The US R&D investments have grown from virtually nothing to about €2.5 billion/year in Internet-related businesses, and, moreover, this growth can largely be attributed to only two relatively recently created companies: Google and Yahoo. The lack of large innovation clusters

25 See also the JRC-IPTS Reference Report “Mapping R&D Investment by the European ICT Sector” (Lindmark et al. 2008).

in the EU may partly explain these difficulties, but market fragmentation, difficult access to financial capital, and other market rigidities are often cited 26 as other possible causes. The lack of large ICT companies in high growth sectors and slower industrial growth clearly have a negative impact on the R&D investment indicators.

Issues in international R&D cooperation

Europe is an important place for ICT R&D, but as shown in this report, globalisation leads to internationalisation of R&D activities embedded into emerging economies. In the ICT sector, US companies have opted for a more rapid internationalisation of their R&D activities than their EU counterparts and have progressively targeted Asian countries, benefiting from a first- mover advantage in the respective markets (see Chapter 9).

Issues of ICT R&D in non-ICT sectors of the economy

Substantial ICT R&D is carried out in other sectors of the economy (for example, automotive or aeronautics). The size of this additional ICT R&D expenditure cannot be readily measured with current statistics. However, OECD has estimated that the magnitude of ICT R&D carried out outside of the ICT sector could be as large as 1/3 the R&D carried out in the ICT sector itself. 27 After further statistical analysis and estimation, taking this additional R&D into account may eventually deepen our understanding of the nature of the EU-US gap in R&D investment. More importantly, it may also provide further evidence of the pervasive impact of ICT and ICT R&D investment on the overall economy. 28

26 See also: Information and Communication Technologies, Market Rigidities and Growth: Implications for EU Policies at http://ipts.jrc.ec.europa.eu/publications/pub.

cfm?id=1508.

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27 Estimated in a sample of countries: Czech Republic, Denmark, Norway, Finland, Japan (OECD, 2008 b).

28 JRC-IPTS is currently investigating this issue further.

Executive Summary

Issues of publicly-funded ICT R&D

It is inherently difficult to access data on public funding of ICT R&D. However, available (incomplete) data indicates a substantial ‘gap’ where, again, the EU is a long way behind the US in terms of R&D public procurement 29 and did not fully adopt dual-use research. 30

Issues of statistics

As stated elsewhere in this report, official statistical data is produced on an on-going basis by the relevant international organisations with a view to improving data quality and comparability at international level. The recently revised data for the US raises their annual business ICT R&D investment by some 20%. Notwithstanding these changes, our analysis helps to develop an understanding of the main trends.

29 See December 2007 EC Communication on pre- commercial procurement, COM(2007) 799, available at:

http://ec.europa.eu/information_society/tl/research/priv_ invest/pcp/documents/pcp_brochure_en.pdf 30 Dual-use research refers to tools or techniques, developed originally for military or related purposes, which are commercially viable enough to support adaptation and production for industrial or consumer uses. The United States Department of Defence (DOD) has an important dual-use research program. Adapted from: http://www. answers.com/topic/dual-use-technology

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Issues of policy

The pervasive impact of ICT, its inherent R&D magnitude and intensity, its innovation performance and global dynamics, confirm the central role ICT plays in the world economy, the EU economy and the EU’s economic recovery. This report further indicates that the current under- investment in ICT R&D is a complex issue that has a multitude of contributory factors, including Europe’s economic and industrial structure. New measures will therefore require a coordinated policy mix that includes, but also goes beyond, ICT R&D and innovation policies. In particular, a policy mix needs to favour industrial restructuring to high-tech, high-growth, high added-value sectors fuelled by ICT-enabled innovations. The report also points to potentially important trends (threats and opportunities) in terms of internationalisation of ICT R&D.

The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union 1 Introduction This report provides

1 Introduction

This report provides an analysis of the state of Information and Communication Technologies (ICT) Research and Development activities in the European Union.

It was produced by the Information Society Unit of the Institute for Prospective Technological Studies (JRC-IPTS) 31 under PREDICT, 32 a research project analysing Research and Development (R&D) in ICT in Europe. PREDICT is being run by JRC-IPTS for the Directorate General Information Society & Media of the European Commission.

This is the third report of a series which is published annually. 33 Each annual report consists of two parts: Part I provides an analysis of available data as part of a regular reporting on ICT R&D, and Part II focuses on a particular topic. This year’s report focuses on internationalisation of ICT R&D. It provides data up to 2007, 34 and therefore covers a period of ICT sector growth that took place between two important crises:

the ‘dot.com’ crisis and the current financial and economic crisis.

Part I starts with a short overview of the ICT sector in general and presents general trends in the EU ICT R&D landscape (Chapter 2). It then analyses R&D in the ICT sector overall, first by putting the available data on the EU in an international perspective, looking in particular at the US as a benchmark (Chapter 3). Analyses by ICT sub-sector and by Member State follow

31 The Institute for Prospective Technological Studies (JRC-IPTS) is one of the seven scientific institutes of the European Commission’s Joint Research Centre (JRC).

32 PREDICT: Prospective Insights on R&D in ICT.

33 The 2009 report is available at http://ipts.jrc.ec.europa. eu/publications/pub.cfm?id=2259 and the 2008 report at

34 For most of the data, 2007 figures were the latest available in December 2009 when the report was prepared; for patent data, latest year available was 2006.

in Chapters 4 and 5 respectively. Chapters 2 to 5 are based on data from the national accounts systems and on statistics on business and government R&D expenditure, business R&D employment, value-added, turnover and trade. Chapter 6 provides a complementary analysis at company level, using data from the EU Industrial R&D Investment Scoreboard, 35 which tracks R&D spending by the biggest EU and non-EU R&D spenders. Chapter 7 provides an overview of ICT patenting in the European Union and a comparison of ICT patenting performance, by Member State and with the US.

Part II includes a thematic analysis on internationalisation of ICT R&D, on which there is still scarce evidence available, particularly with regard to ICT R&D internationalisation with emerging Asian economies. This scarcity creates a challenge for informed policy making. For this reason, PREDICT aims to assess the size and importance of the internationalisation of ICT inventive activity. Chapter 8 discusses the concept of R&D internationalisation and aspects such as drivers and barriers to this process. This discussion serves as a framework and a starting point for a set of empirical analyses of R&D internationalisation in the ICT sector in Chapter 9.

Finally, Chapter 10 provides the conclusions of the report. Several methodological annexes can be found at the end of the report.

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1 Introduction

Data sources and methodology

The data used by PREDICT, in terms of collecting, estimating, aggregating, comparing or processing, follows the international standards set in particular by the Frascati Manual (OECD, 2002). The integrated exploitation of various statistical surveys and tools characterises the work in PREDICT, as none of the available sources provide complete data series for the ICT industry. JRC-IPTS has articulated official data from different repositories, namely ANBERD 2009 (OECD), R&D Statistics (Eurostat), and the EU Industrial R&D Investment Scoreboard (JRC-IPTS) for R&D data, and Structural Business Statistics (SBS), National Accounts, Trade, Price and GDP data (Eurostat), EU KLEMS database (Groningen University), PATSTAT (European Patent Office), Amadeus database (Bureau Van Dijk) and several external and in-house resources for supporting data. JRC-IPTS has used this data to fill a number of gaps, and correct for incoherencies and methodological differences, to allow international comparability. In this methodological effort, JRC- IPTS cooperated with OECD and Eurostat. Where necessary and relevant, JRC-IPTS has developed its own methods and has validated these by weighing them against the opinions and assessments of international experts. This cross- checking confirmed that the data produced were robust.

To address public R&D expenditures data (GBAORD 36 ), PREDICT used the socio-economic data following the nomenclature for the analysis and comparison of scientific programmes and budgets (NABS) classification (2007). The Frascati Manual clearly supports the identification of the ICT sector through the NABS groups, with the argument that despite issues of availability and international comparability of data for several countries, the classification by socio- economic objective may also be used to distinguish ICT-related R&D (OECD (2002), p.189). Initial work had been developed along theses lines by the GFII. 37 PREDICT further improved and deepened some of the methodological aspects, investigating the concrete way data were collected in each country, thus making major improvements in terms of both scope and quality. To fine tune estimations, the PREDICT team also performed extended expert consultations and interviews. 38

The initial basis for assessing company data was the JRC-IPTS annual EU Industrial R&D Investment Scoreboard. 39 The underlying information was integrated and reclassified to isolate the ICT sector. Demographic data (age) were added, to better capture dynamics. Some additional descriptive dimensions have also been included (e.g. regions, countries, companies, R&D investment, R&D investment change, sales, R&D/Sales, composition of sectors). Finally, PREDICT has developed analytical insights to contrast scoreboard data with BERD data (especially concerning the US vs. EU R&D) and offers sub-sectoral analysis (R&D growth, etc.) on a detailed level.

PREDICT is unique in analysing patent statistics using the information produced by all the national European patent offices, the European Patent Office (EPO) and the United States Patent and Trademark Office (USPTO) collected in the PATSTAT database of the EPO. 40 This coverage makes possible a valid comparison of respective EU and US inventive prowess, which would otherwise be affected by a serious country bias. It also enables PREDICT to draw a more complete picture of the ICT R&D and innovation activity of the EU and its Member States.

The analysis of the internationalisation of ICT R&D focuses on two aspects:

- Input in ICT R&D was analysed by using the JRC-IPTS ICT R&D Location Database and looking at the global distribution of over 1,800 R&D sites of a group of 80 multinational companies that are considered to be essential industrial actors in the ICT value chain.

- For output of ICT R&D, an extensive analysis of international patent applications in the PATSTAT database was performed.

GBAORD – Government Budget Appropriations or Outlays on R&D.

37 GFII (2006), «Recherche et développement en sciences et technologies de l’information dans les grands pays industriels. Analyse statistique des investissements en R&D», Groupement Français de l’Industrie de l’Information, GFII Research Report, 2006. This report was produced on the request of the French Ministère délégué à l’enseignement supérieur et à la recherche. It is the only earlier attempt to estimate public national ICT R&D expenditure in the EU.

38 For a more detailed view on the methodology used for estimating R&D Public Expenditures, see Annex 6 at the end of this report.

39 The EU Industrial R&D Investment Scoreboard is available at: http://iri.jrc.ec.europa.eu/research/scoreboard_2008.htm

40 PATSTAT is the name under which the EPO Worldwide Patent Statistical Database is known. It is a database containing worldwide coverage of information on patent applications. Detailed information on PATSTAT is available online at the EPO website: http://

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The 2010 report on R&D in ICT in the European Union

PART 1: General Analysis of ICT R&D in the European Union

1: General Analysis of ICT R&D in the European Union 2 The ICT sector and ICT

2 The ICT sector and ICT R&D in the EU economy

This chapter presents a brief overview of the ICT sector and underlines its importance in terms of R&D in comparison to other sectors of the EU economy.

The ICT sector provides a substantial contribution to the development of the EU knowledge economy: it is the leading sector in R&D expenditure, and its labour productivity is almost twice as big as the whole economy average. 42

Definition of the ICT sector 41

The ICT sector, as defined in this report, includes all firms, whose principal activity is in the following NACE rev.1.1. classes:

Manufacturing:

– NACE 30 (IT Equipment): computers, printers, scanners, photocopiers

– NACE 32 (Components, Telecom and Multimedia Equipment): semiconductors, printed circuits, LCDs, TV tubes, diodes, TV, VCR, cameras, cassette players, CD and DVD players, telephones, faxes, switches, routers, TV and radio emitters

– NACE 33 (Measurement Instruments): measurement instruments (sensors, readers), industrial process control equipment.

Services:

– NACE 642: Telecommunication services (or NACE 64 for international comparisons due to data availability)

– NACE 72 (Computer Services and Software): hardware consultancy, software consultancy and supply, database activities, Internet, maintenance and repair.

Methodological note: All figures characterising the ICT sector presented in Chapters 2 to 5 only refer to those ICT industries included in the NACE classes listed above (30, 32, 33, 642 and 72). They do therefore not cover ICT-related activities embedded in other sectors of the economy, such as those in IT departments of firms not belonging to the ICT sector (e.g., in the automotive or aeronautics industries). This definition covers the business ICT sector. ICT R&D performed by the government sector can take place in any NACE class and it is presented in Section 3.2 of the Report.

41 See Annex 1 for more details on the definition of the ICT sector.

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2 The ICT sector and ICT R&D in the EU economy

2.1 Overview of employment and value added in the EU ICT sector

In 2006, ICT industries in the EU followed

the trend set in previous years, with a relative decline in manufacturing industries and an expansion of services, while in 2007 there was

a slight recovery of ICT manufacturing value

added at current prices and employment, due to favourable macroeconomic conditions (see Figure 2.1). During this period, manufacturing increasingly moved towards Eastern EU Member States. In services, value added continued to grow in 2006 and 2007 in both Telecom and

Computer Services and Software industries. This latter industry witnessed a spectacular growth in employment, especially in Eastern EU Member States. In the EU, the number of people employed

in the Computer Services and Software industry

was over 51% higher in 2007 than it was in 1999, i.e. an increase double that of the whole non- financial market services sector and almost four times that of the aggregate of the non-financial business economy (NFBE). 43 Computer Services

and Software was thus confirmed as the leading ICT sub-sector, with 2.3% of non-financial business employment and about 1.5% of total employment in the EU.

In 2007, there were about 716,000 enterprises in the EU whose main activity was in ICT manufacturing and services. These employed 6.1 million people, and had a turnover of €1,288 billion and a value added of almost €540 billion. 44 These figures stand for 3.4% of enterprises, 4.6% of employment, 5.4% of turnover and 8.5%

value added of the EU NFBE, corresponding

approximately to little less than 3% of EU total employment and to 4.8% of value added. The

43 The non-financial business economy is commonly used as a reference, as it encompasses the real part of the ‘modern’ private economy (and in the European Statistical System undergoes a common framework of data collection within structural business statistics, covering NACE sections C to I and K). It excludes agriculture, public administration and other non-market services, as well as the financial services sector.

44 For information on Methodology for value added data, see the Annex 4.

of
of
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above figures suggest that the average ICT sector enterprise has a relatively larger employment size and a considerably more productive workforce than the average enterprise operating in the rest of the NFBE in the EU.

The number of ICT enterprises in the EU increased 4.3% in 2006, and only 0.4% in 2007 (against 2.6% and 3.7% for the whole NFBE), while the ICT sector value added at current prices increased 5.5% and 5.1% (against 5% and 7.7% for the NFBE), and employment growth accelerated from 0.5% in 2006 to 3.7% in 2007 (against 2.4% and 3.1%). These figures reflect both cyclical dynamics – with a steadier overall economic growth in 2007 – and a longer- term trend, with a general tendency towards the development of service activities in advanced economies, and distinct patterns among ICT sub- sectors (See Figure 2-1).

Employment in the ICT sector in 2007 was 12.3% higher than in 1999, against an increase of 13.7% for the whole of the NFBE. In 2007, total ICT sector employment exceeded for the first time the peak reached in 2001 (see Figure 2-1, left). It took therefore six years for total ICT sector employment to recover from the effects of the dot.com crisis, with an important redistribution of jobs from manufacturing to services.

In 2007, employment in ICT manufacturing showed a slight recovery from the previous year, but its level was still just below the threshold of 2 million workers. With 213,000 jobs less than in 1999, ICT manufacturing employment decreased by about 10% from 1999 to 2007, vs. 7% for the whole manufacturing sector. On the other hand, employment in ICT services, gained about 900,000 jobs from 1999 to 2007, to more than 4.1 million, an overall increase of 27% (slightly higher than the whole of non-financial business services), which brings the share of services from 60% to nearly 68% of the ICT sector total.

In manufacturing, in the eight years from 1999 to 2007 there were 190,000 jobs lost in the

Figure 2-1: Employment and value added in the EU 27 ICT sector, 1999-2007* (1,000 people
Figure 2-1: Employment and value added in the EU 27 ICT sector, 1999-2007*
(1,000 people and billions of €)
The 2010 report on R&D in ICT in the European Union

(*) Latest available year to date

Source: JRC-IPTS estimates based on Eurostat Structural Business Statistics (SBS) and, for value added, on EU-KLEMS and SBS data. Note that SBS data might underestimate Computer Services employment with respect to National Accounts (EU KLEMS) data.

Component, Telecom and Multimedia industry (20% of its employment base) and 90,000 in IT Equipment (37% of its employment base), against an increase of 70,000 jobs in Measurement Instruments (7%) (see Figure 2-1, left). Hence, this latter industry increased its weight from 46% to 54% of ICT manufacturing employment, while losing importance slightly in total ICT employment, reaching less than 18%. Within services, workforce numbers fell from 1.3 to 1.1 million in Telecom Services, while they increased by 1 million in Computer Services and Software, reaching 3 million people employed. In 2007, this latter industry alone represented 49% of total ICT employment, with an increase of almost 13 percentage points with respect to the end of the 90s.

Value added at current prices grew steadily in ICT services, while it showed prolonged stagnation in ICT manufacturing (see Figure 2-1, right). Value added in Computer Services and Software increased 71% from 1999 to 2007 and in 2007 represented 42% of ICT sector value

added. The share of services in total ICT value- added reached 77% in 2007.

As stated above, ICT enterprises have a much higher than average labour productivity. This holds for both manufacturing (€64,600 in 2007, against €52,500 for overall manufacturing in the EU) and service industries (€66,200 in Computer Services and Software and €172,900 in Telecom services, against €42,200 for the aggregate of non financial business services in EU). 45 With respect to the 1999-2000 levels, in 2007 labour productivity at current prices in the ICT sector grew about 31%, against a NFBE average of 23%. In this period, productivity increased a lot (in nominal terms 46 ) in telecom services (+75%), and appeared to be sluggish and negative overall in IT Equipment (-6%), though this was due entirely to the effect of quickly falling unit prices, while physical output was still growing.

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45 As measured by value added per person employed, using Eurostat SBS data (enterprise accounts).

46 Nominal value is the value not adjusted for inflation.

2 The ICT sector and ICT R&D in the EU economy

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At the EU Member States level, the five largest EU economies (Germany, the UK, France, Italy, and Spain) accounted for more than 70% of total ICT value added and for 2/3 of employment in 2007 (see Figure 2-2). As in previous years, the UK led in value added, while Germany had the highest share in employment. 47

In ICT manufacturing, where Germany alone represented more than a quarter of EU employment and 30% of value added, France and the UK were most affected by the employment fall in IT Equipment. From 1999 to 2007, the UK also lost the most employment in Components, Multimedia and Telecom Equipment and, overall, about 40% of its employment base in ICT manufacturing (a loss of 140,000 jobs out of 200,000 for the whole EU), falling behind France and Italy. The UK’s share of ICT manufacturing value added also decreased substantially (from 19% to 12% of the EU total), although employment in the UK continued to be comparatively more productive, as it can be seen by comparing the UK shares in value added and employment in Figure 2-2. However, Hungary, the Czech Republic and lately, Poland, recorded spectacular increases in ICT manufacturing employment. This brought them just behind the four largest EU economies and, in the case of Poland, to a share of 4.2% of EU total ICT sector employment, above Sweden and the Netherlands (See Fig 2.2, upper panel). Comparing this ranking with the ranking for value added, though, reveals that the above-mentioned emerging countries in manufacturing employment typically host mainly lower-end activities, and that value added does not stay in the country. Indeed, the cumulative shares of Poland, the Czech Republic, Hungary, Romania, the Slovak Republic and Bulgaria in EU ICT manufacturing add up to 17% for employment but only to 4.6% for value added. Those of Netherlands,

47 IPTS estimates based on SBS industry level national data. It is important to note that for value added, these are adjusted to EU KLEMS (National Accounts) data, which results in a slightly higher overall value and some differences in relative industry shares, due to an upward correction for IT Equipment and Computer services, and a downward correction for the remaining industries.

Sweden, Finland and Ireland, however, add up to 10% of employment and to almost 21% of value added in ICT manufacturing, i.e. nearly as much as those of France and Italy together (see Figure 2-2).

In ICT services, the UK remains the leading country for employment and, by far, for value added, with shares of EU totals of 19.4% and 24.8% respectively in 2007 (see Figure 2-2). With respect to the peak in 2000-2001, nearly all countries (except Germany) lost employment in Telecom Services, whereas employment grew everywhere in the Computer Services and Software industry.

Overall, the relevance of ICT for total employment in the non-financial business economy varies widely among the EU countries, from less than 3% in Portugal, Greece, Spain, Latvia, Cyprus and Lithuania, to more than 6% in Hungary, 7% in Sweden, and 8% in Finland and Ireland.

When comparing the EU with the US, ICT sector employment is higher in the EU. Total ICT employment stood at nearly 6 million and 3% of total economy employment in the EU, vs. about 4.2 million and 2% in the US (in 2006). Employment dynamics in the US ICT sector between 2000 and 2006 were worse than in the EU across all ICT sub- sectors, with a strikingly diverging trend in Computer Services and Software (see Figure 2-3, blue columns). In terms of value added at current prices, growth in the US was also sluggish with respect to the EU, except in Measurement Instruments (see Figure 2-3, blue lines). Employment contraction in the US, though, resulted in a comparatively higher growth of apparent labour productivity (see Figure 2-3, red columns): for example, contrasted trends in Computer Services and Software can be observed, comparing the US and the EU. These dynamics are presented in Figure 2-3, where the % change in value added is decomposed into the contributions of employment and labour productivity. 48

48 By definition, % change in value added is equivalent to % change in employment + % change in apparent labour productivity (value added per person employed).

Figure 2-2: Country shares (%) in the EU ICT sector value added and employment: Manufacturing,
Figure 2-2: Country shares (%) in the EU ICT sector value added and employment: Manufacturing,
Services and Total, year 2007
Source: JRC-IPTS estimates based on Eurostat SBS. The group ‘Others’ includes si, lt, lv, mt, ee, cy, lu
25
The 2010 report on R&D in ICT in the European Union

2 The ICT sector and ICT R&D in the EU economy

2 The ICT sector and ICT R&D in the EU economy Figure 2-3: The dynamics of

Figure 2-3: The dynamics of employment, value added and apparent labour productivity in EU and US ICT sector: % change from 2000 to 2006

in EU and US ICT sector: % change from 2000 to 2006 Note: Because Telecom Services

Note: Because Telecom Services data for the US include Postal Services the Total ICT Sector EU-US comparison excludes Telecom Services.

Source: JRC-IPTS estimates based on Eurostat (SBS), OECD (STAN), and national statistics.

2.2 Recent global trends in ICT industries

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Preliminary information collected by the OECD (2009b, c) shows the severe effects of the recent financial and economic crisis on the ICT sector, although these have been comparatively milder than those of the past dot.com crisis, with recovery already underway in some countries and industries. In broad terms, ICT services performed better than manufacturing and responded more slowly to the global downturn, but there are relevant differences across both industries and regions.

Figure 2-4 shows the evolution of the worldwide semiconductor market since 1990. Production of semiconductors often anticipates and amplifies global turns: already flat over some quarters since 2006, it dropped sharply from the end of 2008, bringing a drastic reduction to inventories. Sales recuperated in the second and third quarters of 2009. On

a yearly basis, though, for 2009 the OECD

estimates a shrinkage of at least 20%, which would bring the market value in current US dollars to the year 2000 level, with recovery only visible in 2010 (note that 2009 and 2010 are forecasts at the time of publication).

Sales of IT equipment also dropped in quantity

in the last quarter of 2008 (for the first time since

2002) and at the beginning of 2009. Recovery in this area went with a shift towards cheaper products (e.g., netbooks), which, in turn, also brought on a shrinkage in value in the mid term.

Production of communications equipment decelerated towards null growth, while sales values went down for most producers. Mature markets (notably, Western Europe) seem to have suffered more than those in emerging economies, in both the networks and consumer segments (e.g., mobile phones). In this latter area, recovery started in the third quarter of 2009, but at the same time, EU-based companies lost market

The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union Figure 2-4: Worldwide semiconductor market

Figure 2-4: Worldwide semiconductor market by region, 1990–2010

USD billions current prices

market by region, 1990–2010 USD billions current prices Note: 2009 and 2010 are forecasts. Source: elaborated

Note: 2009 and 2010 are forecasts.

Source: elaborated on OECD (2009b), Fig. 25, based on World Semiconductor Trade Statistics, July 2009.

shares to their Asian and US-based competitors. 49 The production of measurement and precision instruments, mostly tied to industrial demand, went down, but only after the downturn of investment. ICT services, instead, have still retained positive growth, due to Computer Services and Software.

In the second quarter of 2009, employment in ICT manufacturing was about 6-7% lower year-on-year, while in ICT services it kept still or increased slightly in most of the countries surveyed by the OECD, with Computer Services and Software performing better than Telecoms. The US have been particularly affected, with a 10% year-on-year decrease for ICT manufacturing employment in September 2009, and a 2% decrease for ICT services. China’s employment performance in ICT equipment was also worse than its manufacturing average, while IT services

49 See, inter alia, the Quarterly European Mobile Phone Tracker by IDC.

continued to be amongst the fastest growing activities. 50

2.3 R&D expenditure in the ICT sector in the EU

In the EU in 2007, gross expenditure in ICT R&D (ICT GERD) was €36.7 billion PPP, which represents 17% of the total R&D expenditure of €219.2 billion PPP. The bulk of ICT GERD consists of business expenditure in R&D (ICT BERD). 51 In 2007, the ICT BERD totalled €34.1 billion PPP, or 93% of ICT GERD. The remaining 7%, i.e. €2.6 billion PPP, consist of government- funded ICT R&D executed outside of the private sector. 52 Within the ICT sector, almost two thirds of BERD are accounted for by manufacturing and

50 For a more thorough analysis, see OECD (2009 b, c).

51 Data on BERD used this report are based on figures published by Eurostat and OECD as from December 2009 (Eurostat) and February 2010 (OECD).

52 See Section 3.3 on GERD.

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2 The ICT sector and ICT R&D in the EU economy

2 The ICT sector and ICT R&D in the EU economy Figure 2-5: Share of ICT

Figure 2-5: Share of ICT in EU total BERD, Year 2007

economy Figure 2-5: Share of ICT in EU total BERD, Year 2007 Source: JRC-IPTS estimations based
economy Figure 2-5: Share of ICT in EU total BERD, Year 2007 Source: JRC-IPTS estimations based

Source: JRC-IPTS estimations based on Eurostat data.

one third by services industries. Services sectors are more prone to non-technological innovation than to R&D, on which this report is focused. It is worth highlighting that the ICT services stand out as a notable exception of innovation intensive services. 53 Furthermore, continuous progress in innovation statistics makes the role of the services in knowledge creation, on top of their recognised contribution to value added and jobs creation, increasingly clear.

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The €34.1 billion PPP of ICT BERD represent a share of 25% of total BERD in the EU economy in 2007 54 (see Figure 2-5). This share not only makes ICT the number one sector in BERD, but actually means that the ICT sector alone is nearly as important for R&D as the two next sectors combined, pharmaceuticals and biotechnology, and automotive. The next sectors, aerospace and machinery and

53 For more analysis see EC(2010), http://ec.europa.eu/ enterprise/policies/innovation/policy/innovation-services/ index_en.htm 54 The share of BERD is higher than the share of GERD, because GERD includes government expenditures covering a much broader set of research domains than BERD, including non-industrial domains.

equipment, are far behind, each one representing less than a third of the ICT BERD share.

In addition, R&D expenditure in other economic sectors often concerns ICT as well, – i.e. in ‘embedded systems’, For example, much of the research done in the automotive sector involves electronic on-board systems, and much of the development work in aerospace concerns electronic steering and control. 55 Therefore, it is safe to say that the R&D in the technological field of ICT is significantly above the R&D in the ICT sector itself. Although a thorough literature review shows that nobody has quantified this embedded research yet, 56 according to OECD (2008b), a sizeable share of the R&D in non-ICT industries (equivalent of about one-quarter of ICT R&D or about 6% of the total economy BERD) leads to ICT products. This report focuses on the R&D expenditures in the ICT sector, but acknowledges

55 The opposite occurs in relation to R&D in photovoltaics, which use semiconductors for energy generation. However, the size of R&D in photovoltaics is much smaller than the size of R&D on ICT embedded systems in other sectors.

56 The IPTS is currently running a pilot project on behalf of DG INFSO to study “embedded systems.”

The 2010 report on R&D in ICT in the European Union

the importance of ICT-related R&D performed in other sectors and especially the role of this type of R&D in defining the demand for ICT products from sectors such as Automotive or Machinery and Equipment.

2.4 R&D employment in the ICT sector in the EU

In 2007, the total number of R&D personnel in the ICT sector in the EU consisted of about 336,000 full time equivalent units (FTE), according to JRC-IPTS estimates, 57 out of which 216,000 were researchers. The EU ICT sector provided 27% of the total business employment in R&D and employed 32.4% of all researchers in the total economy (see Figure 2-6), confirming

57 R&D employment includes all personnel employed in R&D units; researchers are professionals engaged in the conception or creation of new knowledge, products

processes, methods, and systems, and in the management

of the projects concerned (OECD Frascati Manual (2002)).

A precise definition and a concise description of the

estimation methodology can be found in Annex 5.

also from the perspective of employment the knowledge intensity of this sector in relationship with the rest of the economy.

With respect to 2002, the number of researchers (FTE) in the ICT sector grew by almost 15%, at a rate similar to the rest of the economy. In 2007, for the rest of the economy, (except the ICT sector), there were 2.15 FTE researchers per 1,000 persons employed (down from 2.5 in 2002, due to a faster increase in total employment than in the number of researchers); the same ratio FTE researchers/employment stands at 34.2 for the ICT sector (up from 32.0 in 2002, due to a relative faster increase in the employment of researchers in this sector)

In other words, the intensity of R&D employment in the ICT sector was 15 times higher than the average for the rest of the economy, and the gap has been steadily increasing over the last years. A similar pattern can be observed with respect to ICT total R&D employment (including both researchers and support personnel). As

(including both researchers and support personnel). As Figure 2-6: Researchers in the EU ICT sector: number

Figure 2-6: Researchers in the EU ICT sector: number (FTE) and % of total economy 2002-2007

EU ICT sector: number (FTE) and % of total economy 2002-2007 29 Source: JRC-IPTS estimates based
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2 The ICT sector and ICT R&D in the EU economy

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pointed out above, these figures do not take into account ICT researchers employed outside the ICT sector.

2.5 Conclusions

The ICT sector is a major R&D sector in the EU economy, in spite of the fact that it represents only about 3% of total employment in the EU and 4.9% of its GDP. With 17% of Gross Expenditure in R&D (GERD), 25% of overall Business Expenditure in R&D (BERD) and 32.4% of all researchers, the ICT sector is far ahead of the other sectors and a major contributor to the EU knowledge economy.

ICT services account for nearly 70% of total ICT employment, with Computer Services and Software alone reaching almost 50%. Among service activities, employment grew between 2000 and 2007 from 2.2 to 3 million in Computer Services and Software and fell from 1.3 to 1.2 million in Telecom Services. Meanwhile, ICT manufacturing employment shrank from about 2.25 to less than 2 million. The ICT sector is significantly ahead of other economic sectors in labour productivity, both in manufacturing and service industries.

The ICT sector employs more researchers than any other sector in the economy. Between 2002 and 2007, the number of researchers (FTE) in the ICT sector grew by about 15% to reach 216,000.

The 2010 report on R&D in ICT in the European Union

3 R&DThe 2010 report on R&D in ICT in the European Union in the perspective ICT sector

in

the

perspective

ICT

sector

from

an

international

In the following sections, the report presents and analyses ICT GERD and its components for several countries, focusing on the EU and the US.

For the sake of clarity, the table below presents the most relevant figures used across these sections.

the most relevant figures used across these sections. Table 3-1: GDP, GERD, and ICT GERD and

Table 3-1: GDP, GERD, and ICT GERD and its components (billion e PPP), EU and US, 2007

Gross

2007 Domestic

Product

(Bill PPP)

Total GERD

ICT GERD

ICT BERD

ICT GBAORD

ICT GOVERD

EU

12363.9

219.2

36.7

34.1

5.3

2.6

US

11703.8

310.2

87.8

83.8

10.4

4.0

Source: JRC-IPTS estimates based on data from Eurostat, OECD, EU KLEMS

Important note

Official statistical data is produced on an on-going basis by the relevant international organisations (Eurostat, OECD, US National Science Foundation (NSF)). It is normal to observe minor adjustments in the available data from one year to another. US R&D data has been nevertheless subject to a major revision by the NSF which was published by OECD in late 2009 (OECD 2009a). The revision follows the decision of the NSF to change its method for classifying industrial R&D, beginning with reference year 2004. The major impact of this revision is a 40% increase in the amount of R&D allocated to the manufacturing sector (i.e. in pharmaceuticals and ICT), mainly at the expense of the wholesale trade industries. Therefore R&D data for the US presented in this report is not directly comparable with the statistical data used in previous editions of the report. The current revision does not affect the overall trends observed before, or the relevance of our previous conclusions (see Annexes 3 and 6).

3.1 Business expenditure in ICT R&D (ICT BERD)

3.1.1 The contribution of the ICT sector to total BERD intensity (BERD/GDP)

The ICT sector in the EU spent €36.6 billion on R&D in 2007 (BERD) - or €34.1 billion in PPP exchange rates. 58 This was far below the

58 PPP: Purchasing Power Parity or PPP adjustment is used in order to attenuate the impact of price differentials and exchange rate movements over time in international comparisons. It best portrays the effort in terms of non tradable inputs amongst which, notably, labour. In this report, it allows adjustment

US at €83.8 billion (in PPP exchange rates), but more than Japan (€31.1 billion), Korea (€13.8 billion), Taiwan (€7.6 billion), Canada (€3 billion) and Australia (€1.3 billion). The €36.6 billion spent in ICT research performed in the business sector amount to 0.30% of EU GDP (this is the contribution of the ICT sector to total BERD intensity (BERD/GDP) – see Figure 3-1), whilst the €83.8 billion PPP spent in the US correspond to 0.72% of the US GDP, a contribution more

for differences in price levels, in order to compare various countries. The unit of account is an EU27 representative basket of goods and services expressed in euros.

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3 R&D in the ICT sector from an international perspective

3 R&D in the ICT sector from an international perspective Figure 3-1: Contribution of the ICT

Figure 3-1: Contribution of the ICT sector to total BERD intensity (BERD/GDP): 2002-2007

the ICT sector to total BERD intensity (BERD/GDP): 2002-2007 Source: JRC-IPTS based on data from Eurostat,

Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS and national statistics.

than twice the EU level. The contribution of the ICT sector to total BERD intensity was, however, much higher in Japan, and even higher in Korea and Taiwan, where it is four times the EU level.

Notwithstanding the importance of the structural profile of each of these countries, which will be discussed later, it remains a reality that only Australia (of the countries compared above) has a lower level of ICT BERD intensity than the EU.

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In 2007, total economy business spending on R&D in the EU amounted to 1.18% of GDP (total BERD intensity). Again, this is significantly less than the 1.89% of the US, and even further behind Taiwan, Japan and Korea. In fact, among the countries in this comparison, the EU ranks last in terms of total BERD as a share of GDP. Figure 3-1 ranks the EU and six comparison countries on the contribution of the ICT sector to total BERD intensity in 2007.

The ratio BERD/GDP saw very limited variation for the whole period 2002-2007, and so

did the ICT sector’s respective ratios. If anything,

a slight descending trend in the latter can be

observed for the EU and a sustained increase for

Korea and Taiwan. It is to be highlighted that the EU managed to maintain its level in ICT R&D investments despite two enlargements, when countries with low R&D intensities, especially

in the business sector, joined the EU. Finally, it is

worth mentioning that though investment in the

ICT sector did not contract over the period (see comments on the ICT BERD growth in Section 4.2 and in particular the Figure 4-1), other areas

of the economy grew.

One should also note that, in 2007, the ICT sector alone accounted for 60% of the total R&D intensity gap with the US, 38% of the gap with Japan, and a staggering 79% of the gap with Korea. Indeed, in Korea the ICT sector invests more in BERD relative to GDP (1.30% in 2007), than all sectors together in the EU (see Figure 3-1). When comparing the EU with Taiwan, the gap in ICT R&D actually surpasses 100% - Taiwan has a very strong specialisation in ICT with over 73% of

The 2010 report on R&D in ICT in the European Union

BERD performed in the ICT sectors (see more in next Section 3.1.2). Over the 2002-2007 period, the contribution of ICT to the total BERD gap between the EU and the main Asian competitors declined, mainly due to a faster increase in non-ICT sector BERD in these countries. When compared with the US instead, this contribution remains stable over the period.

3.1.2 Economic weight and R&D intensity of the ICT sector

The contribution of ICT BERD to total economy BERD depends mainly on two factors: the relative size of the ICT sector in the economy (measured by its value added (VA) over GDP), and the R&D intensity of the ICT sector (measured as ICT BERD over ICT value added). 59

A relatively larger ICT sector is expected to have

a higher share in total R&D, while a high R&D

intensity in a sector indicates strong investment in technological advances. Breaking down the

above data according to the formula ICT BERD/ GDP = (ICT VA/GDP) * (ICT BERD/ICT VA), gives the results shown in Table 3-2.

As the data in Table 3-2 indicates, part of the reason why the ICT sector contributes less to total economy BERD intensity in the EU than in competing countries is that the sector is relatively smaller: i.e., it has a smaller relative weight in the

overall economy (ICT VA/GDP). The difference is particularly pronounced in comparison to Korea and Taiwan, where the ICT sector accounts for twice as much of the economy as it does in Europe. The difference with Japan and the US is sizeable, but much less significant. Australia’s ICT sector is smaller than the EU’s (relative to GDP).

However, the EU ICT sector also has a lower R&D intensity than its main competitors (ICT BERD/ICT VA). Indeed, in comparison with the US, the gap in R&D intensity is much bigger than the difference in relative size: the higher contribution of ICT to total BERD intensity in the US is therefore more due to the higher R&D

intensity of the sector than to its larger relative size. This observation should, however, be interpreted with caution. It does not necessarily mean that the gap in R&D intensity is due to lower R&D expenditure by individual EU ICT companies than by their American counterparts. On the contrary,

a recent JRC-IPTS report shows that company

R&D intensity is similar for comparable EU and US firms in the different ICT sub-sectors. 60 Further

analysis at ICT sub-sector and company levels can be found in Chapter 4 (Sections 4.4 and 4.5) and

in Chapter 66 (Sections 6.3 and 6.4). The R&D

intensity and the economic weight of the ICT sector in Japan, Korea and Taiwan are even bigger than they are in the US. Korea has the highest R&D intensity among the countries in our

has the highest R&D intensity among the countries in our Table 3-2: ICT BERD broken down

Table 3-2: ICT BERD broken down into size and intensity factors, 2007

ICT BERD in the economy (ICT BERD /GDP)

 

Size

Intensity

=

(ICT VA/GDP)

x

(ICT BERD/ICT VA)

Japan

0.87%

6.80%

12.8%

Taiwan

1.31%

10.61%

12.3%

US

0.72%

6.39%

11.2%

EU

0.30%

4.80%

6.2%

Australia

0.20%

3.60%

5.6%

Korea

1.30%

7.86%

16.5%

Source: JRC-IPTS estimates based on data from Eurostat, OECD, EU KLEMS

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3 R&D in the ICT sector from an international perspective

sample, which is nearly three times as high as that of the EU. To a larger extent, the outstanding R&D intensity of the ICT sectors in the Asian countries is due to specialisation issues.

ICT manufacturing sectors, much more R&D intensive than services sectors, produce 3% of GDP in Japan, 5% in Korea and as much as 7% in Taiwan, as compared with only 1% in EU and 1.5% in US. Finally, the ICT sector’s R&D intensity is lower in Australia than it is in the EU.

3.1.3 ICT BERD growth: international comparison

As was seen in Figure 3-1, the contribution of the ICT sector to total BERD intensity (ICT BERD/ GDP) changed only a little during the period

2002-2007 in the Triad (the EU, the US and Japan) but kept driving general BERD growth in Korea and Taiwan. It is also interesting to consider how the dynamics of ICT expenditures relate to general inflation and to the development of the sector value added. For comparability reasons, 61 Figure 3-2 shows average annual growth only for the period 2005-2007. The growth in the ICT BERD was, on average, above the growth of inflation for all the countries in the sample. 62 For most of the countries, except Korea and Taiwan, 2003 was a year of negative real growth in ICT BERD, which started to pick-up in 2004. The highest growth rates were registered in 2006: almost 10% in the EU and Taiwan, 8% in the US and 15% in Korea. In 2007, growth rates for ICT BERD slowed substantially.

In 2007, growth rates for ICT BERD slowed substantially. Figure 3-2: Average annual ICT BERD Growth,

Figure 3-2: Average annual ICT BERD Growth, 2005-2007, percentage changes; data computed using GDP deflators

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percentage changes; data computed using GDP deflators 34 Source: JRC-IPTS estimates based on data from Eurostat,

Source: JRC-IPTS estimates based on data from Eurostat, OECD and EU KLEMS.

61 Data for VA for Canada is not available before 2005; the year 2004 is an outlier for the US because of the revision of the BERD data.

62 Except Canada, for the 2002 – 2007 period.

The 2010 report on R&D in ICT in the European Union

R&D investments are generally procyclical, and their dynamics are related to the evolution of the ICT sector itself. After the dotcom crisis, value added rose above the inflation rate by 2004. The sector’s highest growth over the entire 2002-2007 period was registered by Taiwan, with a staggering 7.5% average growth per year. Korea followed at a distance (3.8% p.a.), and Japan and the US at about 2.5% p.a. Europe had an average growth in ICT VA of only 1.2% p.a. 63 during that same period.

As shown in Figure 3-2, the differences between the growth of value added and the growth of ICT BERD over the last two years of the business cycle highlight a context in which the Triad countries (Japan, the US and the EU) slightly reduced the pace of their R&D investment. Other countries such as Taiwan, Korea, and Australia, were still making strong, sustained efforts to upgrade the knowledge intensity of their ICT production.

3.2 Government financing of ICT R&D (ICT GBAORD)

This section compares EU and US governments’ total R&D financing and ICT R&D financing, respectively named total GBAORD 64 and estimates of ICT GBAORD. ICT GBAORD measures government support to ICT-related R&D activities, or, in other words, how much priority governments place on the public funding of ICT

63 To deflate the VA, we used the general GDP deflator, not sectoral prices, because the GDP deflator expresses better the purchasing power of the revenues of productive factors contributing to the creation of ICT goods and services. 64 Government budget appropriations or outlays on R&D (GBAORD): “are all appropriations allocated to R&D in central government or federal budgets and therefore refer to budget provisions, not to actual expenditure. Provincial or state government should be included where the contribution is significant. (…). Data on actual R&D expenditure, which are not available in their final form until some time after the end of the budget year concerned, may well differ from the original budget provisions. This and further methodological information can be found in the Frascati Manual, OECD, (2002). GBAORD data are assembled by national authorities using data for public budgets. These measure government support to R&D activities, or, in other words, how much priority Governments place on the public funding of R&D.” (European Commission, 2008a)

R&D, irrespective of the economic sector 65 or industry 66 in which these activities are performed. Hence GBAORD reflects techno-scientific priorities rather than sector or industry–based ones. GBAORD data include both current and capital expenditure.

Nevertheless, ICT GBAORD data have to be taken with caution, as the current methodology for collecting GBAORD data in EU Member States, based on a nomenclature of socio- economic objectives (NABS 67 ), does not allow direct calculation of the public funding of ICT R&D, 68 imposing the need to work with estimates. The underlying methodology is to estimate the share of ICT-related research in selected NABS categories. The result is an estimate of the total government funds for ICT R&D, irrespective of the industry in which this budget is spent.

The analysis of total GBAORD data (2007) shows that when expressed in comparable monetary terms (PPP), the US government spends annually €117.9 billion on R&D, 69 the EU spends €86.1 billion and Japan spends €24.3 billion.

In Europe, research financed from ‘General University Funds’ is in 2007 the main socio- economic objective at EU level (31.2% of the total), followed by ‘Defence’ (12.5%). Comparatively, funds from the ‘Defence’ budget cover only 4.5% of the total in Japan and almost 58% in the US. In Europe, ‘Defence’ represents major shares of total GBAORD in France (28.8%), the UK (23.4%), Sweden (16.4%) and Spain (13.1%).

65 Government, business enterprise, private non-profit, higher education and abroad.

66 In this report, the classification used for economic sectors is NACE Rev.1.1.

67 NABS: Nomenclature for the analysis and comparison of scientific programmes and budgets.

68 The methodologies used for elaborating the ICT GBAORD data presented in this section are based on estimates by IPTS and will be fully described in a forthcoming IPTS Technical Report on “Public Expenditures in ICT R&D”. A short summary is provided in Annex 6.

69 US GBAORD includes the financing of R&D by the Defence Advanced Research Projects Agency (DARPA), part of the Department of Defence (DoD).

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3 R&D in the ICT sector from an international perspective

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As a share of total GBAORD, ICT GBAORD in the EU represents 6.1% of total government support to R&D activities, i.e. €5.3 billion of a total of €86.1 billion PPP, while the US government dedicates 8.8% of its total R&D spending to ICT, i.e. €10.4 billion PPP of a total of €117.9 billion PPP (Figure 3-3). 70

The following figures show GBAORD and ICT GBAORD, first in absolute value (PPP), and second, expressed as a percentage of GDP. This makes it possible to compare across countries while neutralising the effect of the size of the economies.

The EU figure of €86.1 billion of total GBAORD amounts to 0.71% of EU GDP, below the US GBAORD share of 1.01% of GDP, but slightly above Japan’s share of 0.68% of GDP (not in the figure).

Finally, the €5.3 billion PPP spent by the EU governments on ICT research amount to 0.04% of EU GDP, whilst the €10.4 billion PPP spent by the US government correspond to 0.09% of US GDP.

To sum up, in 2007 public expenditures on R&D represented €117.9 billion (in PPP exchange rates) in the US against €86.1 billion in Europe. The share of this public expenditure targeted at ICT R&D is rather low, representing less than 10% of the total, both in the US and the EU, as governments support a wide variety of research domains including, for example, the humanities. But EU public expenditures in R&D, for both the whole economy, and specifically for ICT R&D, lag behind US spending in absolute values and also as shares of GDP. The US invests more in R&D in proportion to its GDP and in real terms. The US also invests more in targeted ICT

and in real terms. The US also invests more in targeted ICT Figure 3-3: Public expenditures

Figure 3-3: Public expenditures in R&D. EU and US (Billion Euros PPP), 2007

expenditures in R&D. EU and US (Billion Euros PPP), 2007 Source: Eurostat and JRC-IPTS calculations. 70

Source: Eurostat and JRC-IPTS calculations.

70 All data and estimates will be available in the above mentioned forthcoming IPTS Technical Report on “Public Expenditures in ICT R&D”.

Figure 3-4: Public expenditures in R&D as share of GDP. EU and US, 2007 The
Figure 3-4: Public expenditures in R&D as share of GDP. EU and US, 2007
The 2010 report on R&D in ICT in the European Union

Source: Eurostat and JRC-IPTS calculations.

R&D as a share of its overall public budget for R&D. In fact, in terms of shares of ICT GBAORD relative to GDP, the EU value is less than half that of the corresponding figure for the US (see Figure 3-4), while the total GBAORD as a share of GDP is only one third smaller. These observations are even more relevant if we remember that, contrary to the general rules applying to EU Member States for GBAORD data collection, the US data does not include individual States’ GBAORD or classified research in US defence expenditures for R&D 71 which in itself represents an important share of the total R&D budget of the Pentagon, or public procurement of R&D by the Department of Defence. Taking these additional facts into account, the gap in public expenditures for ICT R&D between the US and the EU appears to be much larger than the one calculated strictly on the basis of available GBAORD data.

71 Unofficial sources in the US press, specialised in defence and homeland security, usually claim that such budgets to amount to billions of US$, but quite evidently official sources are not available to confirm this, nor could they be expected to make such information available.

3.3 Contribution of the ICT sector R&D to the Barcelona target (ICT GERD)

The economic and social ambitions of the EU were set for the decade at the EU March 2000 Summit in Lisbon. 72 This was followed by the March 2002 Summit in Barcelona where targets were set for the R&D domain. The Barcelona Summit aimed to give a significant boost to overall R&D in Europe, with a particular emphasis on increasing gross expenditure on R&D (GERD) to 3% of EU GDP, with business sector financing amounting to an average share of two thirds of this gross expenditure on R&D (GERD). The recently proposed EU2020 strategy maintains this objective high on the EU agenda.

GERD is defined as total expenditure on R&D performed within the EU territory during a given period. As shown in Figure 3-5, GERD can be

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72 The 2000 Strategy has been reviewed since. In February 2005, the European Commission announced the re-launch of the Lisbon Strategy as “Partnership for Growth and Jobs”.

3 R&D in the ICT sector from an international perspective

3 R&D in the ICT sector from an international perspective Figure 3-5: Breakdown of GERD BERD

Figure 3-5: Breakdown of GERD

BERD

international perspective Figure 3-5: Breakdown of GERD BERD F i n a n c e d

F i n a n c e d b y Businesses

Performed by

Businesses

+ BERD

F i n a n c e d b y Government

Performed by

F i n a n c e d b y Government

Performed by

GERD = BERD

+ GOVERD

Businesses Government GBAORD
Businesses
Government
GBAORD

broken down according to the sectors financing the R&D effort or to the sectors performing the R&D. 73 The main objective of this section is to estimate ICT sector GERD (ICT GERD), and its contribution to the Barcelona 3% target. Previous sections of this chapter presented data on ICT BERD (R&D performed in the ICT business sector, Section 3.1) and ICT GBAORD (ICT R&D financed by the government, Section 3.2). The

current section attempts to put these data together

to obtain a full picture of the overall ICT GERD.

Following the assumptions used in this report, GERD is the sum of R&D performed by the business sector (BERD) and the R&D performed by the

government sector 74 (GOVERD). Data for economy- wide GERD is available from dedicated surveys, but

at industry level, estimations need to be made.

Following the French Association of Electronic Information Industry (GFII, 2006), GOVERD is estimated here as a part of the R&D

financed by the government sector (GBAORD). In

a 73
a
73
38
38

nutshell, GBAORD consists of funds oriented

towards universities and state institutions and

The economic sectors considered are: business enterprises, government, higher education, private non-profit and abroad.

74 In this report, we use a broader definition of the business sector (that includes the private non-profit sector) and of government (that includes the higher education sector). Funds from abroad are considered to be included either in business sector funds or in public sector funds, according to their origin. Research performed abroad is marginal and not taken into account in GERD. For further methodological details, see Annex 6.

businesses. The part of GBAORD that finances ICT research performed by universities and public research institutes is therefore taken as an estimate of ICT GOVERD. 75

ICT GERD data, estimated as above, must be taken with caution. The current methodology for collecting expenditure data for financing and/or performed R&D in EU Member States or in the US at sector level does not yet allow us to calculate directly, or in full detail, the ICT GERD data within a completely coherent methodological framework (see Annex 6). Nevertheless, the results presented here can shed some light on the total relative position of the EU vs. the US and provides interesting insights.

The EU spends €219.2 billion PPP on R&D (total GERD) while the US spends €310.2 billion (PPP). The results of our estimations show that out of this total R&D expenditure, the EU spends €36.7 billion on ICT GERD while the US spends €87.8 billion (PPP). Respectively, these ICT R&D figures correspond to 17% and 28% of total R&D expenditures in the EU and the US. These are important shares and underline the leading role of this domain in R&D, and even more so in the US.

The gap between the EU and the US regarding total GERD amounts to €91 billion, while the ICT GERD gap amounts to some €50 billion. The ICT

75 There

are

nevertheless

a

number

of

methodological

limitations to this assumption, explained in Annex 6.

Figure 3-6: The Barcelona target - total GERD and ICT GERD as % of GDP,
Figure 3-6: The Barcelona target - total GERD and ICT GERD as % of GDP, EU and US, 2005 and 2007
The 2010 report on R&D in ICT in the European Union

Source: Eurostat and JRC-IPTS calculations.

sector is therefore responsible for more than half of the R&D gap between the US and the EU.

Indeed, throughout this report it is observed that figures on EU ICT R&D are consistently between 40% to 50% of the corresponding figures for US ICT R&D: this is true for ICT BERD, ICT GBAORD and, consequently ICT GERD. These ratios are also fairly constant over time.

The following paragraphs look at structural issues further, in order to contrast the positions of the government and business sectors, from the point of view of both performance and financing.

The calculations made to estimate ICT GERD provide all the elements needed for this purpose. Following the approach described above, the two equations presented in Figure 3-7 provide values for ICT GERD and its breakdown on financing sources and performing sectors for the EU and the US (in € billion PPP).

Several

interesting

observations

can

be

made. In both the US and the EU, the share of

total ICT GERD performed by business sector (ICT BERD) is as high as 93% for EU and 95% for the US. This is different from the situation at the level of the total economy R&D, where the ratio BERD/GERD is 71% for the US and 64% for the EU.

On the financing side, structural similarities between the US and the EU also exist. In both cases, the share of ICT BERD financed by the business sector is over 85%, and significantly higher than the share of total R&D financed by the business sector and the private non-profit sectors at the level of the total economy (57% for the EU and 69% for the US). This is to be expected, since national R&D budgets also cover areas of non- commercial ‘frontier’ R&D, while ICT activities are driven to a larger extent by applicative R&D with fast commercialisation. This applicative R&D tends to be performed by businesses as seen above, and also financed by them.

Following the last statistical revision of US data, which increased ICT BERD by about 10%, the share of ICT BERD financed by the government

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3 R&D in the ICT sector from an international perspective

3 R&D in the ICT sector from an international perspective Figure 3-7: Breakdown of ICT GERD

Figure 3-7: Breakdown of ICT GERD for EU and the US (Billion Euros PPP), 2007

of ICT GERD for EU and the US (Billion Euros PPP), 2007 ICT GERD (36.7) =

ICT GERD

(36.7)

=

ICT BERD

(34.1)

F inanced by Businesses F inanced by Government F inanced by Government ICT BERD +
F inanced by
Businesses
F inanced by
Government
F inanced by
Government
ICT BERD
+
ICT BERD
+
ICT GOVERD
Performed
Businesses
by
Performed
by
Performed
by
Businesses
Government
(31.4)
(2.7)
(2.6)

ICT GBAORD

(5.3)

Government (31.4) (2.7) (2.6) ICT GBAORD (5.3) ICT BERD (83.8) F inanced by Businesses F inanced

ICT BERD

(83.8)

F inanced by Businesses F inanced by Government F inanced by Government ICT GERD =
F inanced by
Businesses
F inanced by
Government
F inanced by
Government
ICT GERD
= ICT BERD
+
ICT BERD
+ ICT GOVERD
Performed
Businesses
by
Performed
by
Performed
by
(87.8)
Businesses
Government
(77.4)
(6.4)
(4.0)

ICT GBAORD

(10.4)

became similar: 7.3% for both the EU and the US in 2007. It is interesting to observe that in contrast, at the level of the economy as a whole, the share of R&D financed by business in the US is over 10 percentage points higher than it is in the EU.

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To sum up, achieving the EU Barcelona target of GERD at 3% of GDP is still rather a long way off, with the EU investing 1.85% of GDP (in 2005), and the US investing 2.65%. Here, the well known total R&D gap with the US amounts to a GERD/GDP difference of 0.80%. Figure 3-6 also shows the EU/US ICT GERD gap in relative terms: the US invests 0.75% of its GDP in the ICT sector R&D, while the EU invests only 0.31%. Hence, there is an ICT GERD intensity (ICT GERD/GDP) gap of 0.44%, or over half of the total gap of 0.80%.

The data analysed in this section on ICT GERD can be summarized as follows:

• The total US ICT GERD appears to be 2.5 times higher than the EU ICT GERD, measured either in absolute terms or relative to the size of the economy (GDP): the US invests €87.8 billion PPP or 0.75% of its GDP in ICT R&D, while the EU invests €36.7 billion PPP or 0.31% of its GDP.

• When compared with data published before, current results should not be interpreted as an increasing gap EU-US in terms of ICT GERD, as it is due to the revision of underlying data. It is very reasonable to assume nevertheless that current figures reflect better the size of the EU-US gap.

The 2010 report on R&D in ICT in the European Union

• The contribution of ICT sector to the total R&D intensity (GERD/GDP) gap between the US and the EU reads as follows: 0.44% out of the total R&D intensity gap (0.80%) between the US and the EU is due to the EU ICT (see Figure 3-6).

3.4 Conclusions

Regarding BERD, the EU ICT sector contributes a significant share of the gap in BERD intensity between the EU and its main global competitors. For example, in 2007 the ICT sector alone accounted for 60% of the total R&D intensity gap with the US, 38% of the gap with Japan, and a staggering 79% of the gap with Korea (see Figure 3-1). Indeed, in Korea the ICT sector invests more in BERD relative to GDP (1.30% in 2007) than all sectors together in the EU. These gaps are caused by a combination of the fact that, in the EU, the ICT sector is smaller (measured by value added/ GDP), and the ICT sector R&D intensity is lower (measured by BERD/value added). The lower EU R&D intensity is responsible for more than half of the above gaps.

Over the 2002-2007 period, in most of the countries except Canada, ICT BERD grew more than the economy-wide inflation. With the exception of Korea and Taiwan, for the rest of the countries, the years of the highest growth in ICT

BERD were 2005 and especially 2006. For all the countries in our sample, these rates slowed down significantly in 2007.

Total ICT GERD reflects the total R&D expenditures in the public and private ICT sector. It takes into account not only the ICT BERD, but also the R&D performed in the ICT public and higher-education sectors.

International comparison of ICT GERD highlights the role of ICT in explaining differences in national performance. Unfortunately, data shortages allow only tentative estimations of ICT GERD for the EU and the US only. The US ICT GERD is 2.5 times higher than the EU. The US invests 0.75% of its GDP as ICT GERD, while the EU invests only 0.31% of its GDP, hence over half the total R&D intensity gap between the US and the EU (0.80%) is due to the EU-US ICT R&D intensity gap (0.44%).

Further, the analysis of the ICT GERD and its decomposition may bring important insights to the debates over the role that the public financing of ICT R&D may have in complementing the efforts of the ICT business sector. So far, estimates of available data show that the structural behaviour of US and EU public sectors are not very different. However, further investigation is needed to assess the actual role and qualitative characteristics that the public investments in ICT R&D truly play in the EU as compared with the US.

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The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union 4 R&D in ICT by

4 R&D in ICT by ICT sub-sector

4.1 Economic weight and BERD

The ICT sector is composed of five sub- sectors, three of which are in manufacturing (NACE 30, 32 and 33) and two in services (NACE 64 and 72). As shown in Table 4-1, these are very different from each other in terms of relative size, BERD and competitive strength.

As can be seen from Table 4-1, 75% of value added is accounted for by the two service sectors (NACE 64, 72). These also have higher value added/turnover ratios, indicating a lesser dependence on intermediate inputs, especially in Computer Services and Software, which are most labour intensive (measured as the ratio number of employees/turnover).

Measurement Instruments also create a relatively high value added and are comparatively labour intensive, while the other two ICT manufacturing sub-sectors have comparatively lower value added/turnover ratios.

Not surprisingly, a large share of ICT BERD (almost two thirds) is performed in the manufacturing sub-sectors, in particular in Components, Telecom and Multimedia Equipment and in Measurement Instruments. Computer Services and Software also have a high absolute amount of BERD, but it appears small relative to the large size of this sub-sector. Telecom Services have only a small share of ICT BERD.

Telecom Services have only a small share of ICT BERD. Table 4-1: Turnover, employment, value added,

Table 4-1:

Turnover, employment, value added, BERD for the ICT sub-sectors, 2007 76

 

Turnover

Employment

Value added

 

BERD

Sub-Sector (NACE)

bn

(%)

thousands

(%)

bn

(%)

bn

(%)

30

IT Equipment

59.5

(4.3%)

159.9

(4.3 %)

13.8

(2.3%)

1.3

(3.6%)

32

IT Components.,

Telecom & Multimedia

225

(16.2%)

747.7

(16.2%)

52.5

(8.9%)

14.1

(38.5%)

Equipment

 

33

Measurement

Instruments

153

(11.1%)

1070

(11.1%)

64.3

(10.9%)

7.5

(20.8%)

64

Post and Telecom

Services*

540

(38.9%)

3000

(38.9%)

245.5

(41.4%)

4.3

(11.7%)

72

Computer Services

and Software

408

(29.5%)

3011.5

(29.5%)

216.6

(36.5%)

9.3

(25.4%)

Total ICT

1385.5

(100%)

7989.1

(100%)

592.7

(100%)

36.6

(100%)

Source: JRC-IPTS estimates based on data from Eurostat, OECD, EU KLEMS

Note: * Figure on BERD refer to the NACE class 642, Telecom Services only; all the rest of the figures on the row cover the whole NACE class 64, Post and Telecom Services

76 Table in nominal terms. The BERD total of €36.6 Billion (nominal) is equivalent to the €34.1 Billion (PPP) used in the earlier chapters for comparability reasons (see Section 3.1, footnote 58).

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4 R&D in ICT by ICT sub-sector

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44

4.2 BERD growth: comparison by ICT sub-sector

Analysing BERD growth by ICT sub-sector (see Figure 4-1) provides further evidence of the different trajectories of the different sub- sectors. However, what springs to mind first is that, although in real terms the total ICT BERD had very small fluctuations between 2002 and 2007 relative to general inflation, this is only the aggregated result of rather strong sectoral movements.

The only sector that saw sustained high rates of growth every year is the Computer Services and Software. As a result, it now has the second largest BERD in the ICT sector, as is shown in Table 4-1, but it is still far behind Components, Telecom and Multimedia Equipment, despite the pronounced decrease in the latter. In fact, Components, Telecom and Multimedia Equipment, is the subsector with the highest

share in the total BERD, and also the only sector for which a clear long-term trend towards decreasing BERD can be discerned. It is worth noticing that the R&D intensity of this sector declined over the 2002-2007 period, in parallel with an increase in the R&D intensity of the Telecom services. The international dynamics of R&D and of production at a disaggregated level normally have very specific sectoral/regional explanations which call for further and deeper research into the specific cases. However, the figures for BERD growth in Telecom Services should be treated with care, since the total is quite small and the number of players is very small. Hence adjustments, that may be part of normal business strategies at company level, may induce fluctuations in the total.

Finally, despite the slight growth in 2007, the IT Equipment sub-sector continues on a downward trend in R&D effort, from an already low base.

downward trend in R&D effort, from an already low base. Figure 4-1: Real growth of ICT

Figure 4-1: Real growth of ICT BERD in the EU, values deflated with the GDP deflator

2002=100%
2002=100%

The 2010 report on R&D in ICT in the European Union

4.3 ICT R&D employment by sub-sector

A similar picture of the ICT sub-sectors emerges when we look at numbers of researchers and researcher intensity 77 (Figure 4-2). In 2007, the 71,000 researchers in the Computer Services and Software sub-sector alone accounted for 33% of the 215,000 total ICT sector researchers. The Components, Telecom and Multimedia Equipment sub-sector is next, at almost 32% (68,000 researchers). 2007 is the first year when the number of researchers in the Computer Services and Software surpassed the number of researchers in the Components, Telecom and Multimedia Equipment sub-sector. In 2007, ICT manufacturing industries together employed 58% of the total number of ICT sector researchers, down from 62% in 2005.

From 2002 to 2005, the number of researchers fell by 14% in IT equipment with an even higher drop in the overall employment in this sub-sector. However, the number of

researcher began to grow again in 2006, and BERD expenditures in the sub-sector also increased. By 2007, there was basically the same number of researchers in the IT Equipment sector as in 2002 at a much lower total employment, but the growth of the BERD/researcher ratio was below the inflation rate. These developments in the IT sector were accompanied by an increase in the labour productivity, albeit concentrated in the 2002-2005 period. This suggests that the EU IT Equipment sector is currently increasing its innovation-based competitiveness after it went through an important restructuring phase following the dotcom crisis.

The research labour force expanded slightly faster than the rest of the ICT sector in Measurement Instruments and in Telecom Services, compensating for the important decline in 2007 in the Components, Telecom and Multimedia Equipment. Computer Services and Software were by far the most dynamic: the number of researchers grew by 25,000 FTE units which equals the aggregated growth for the whole ICT sector.

which equals the aggregated growth for the whole ICT sector. Figure 4-2: EU ICT sector researchers

Figure 4-2: EU ICT sector researchers and R&D employment intensity by industry, 2002-2007

and R&D employment intensity by industry, 2002-2007 Source: JRC-IPTS estimates based on Eurostat, OECD and

Source: JRC-IPTS estimates based on Eurostat, OECD and national statistics.

77 Researcher intensity is defined as share of researchers’ employment on total employment.

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4 R&D in ICT by ICT sub-sector

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46

R&D employment research intensity, 78 is also very diverse among the ICT sub-sectors, ranging from over 90 (FTE) researchers per 1,000 employed in Telecom and Multimedia Equipment to about 18 per 1,000 in Telecom services. Services have, on average, much lower R&D employment intensity than manufacturing. From 2002 to 2007, this intensity grew in all ICT sub- sectors, by 3 to 7 percentage points according to the sector. The impressive 15 percentage points growth in IT Equipment is as explained above the result of different dynamics in the number of researchers vs the total employment.

Finally, the share of researchers in total R&D personnel (both in FTE units), is overall about 10% higher in the ICT sector than the EU economy average. It has however been declining

since 2005. In 2007, this ratio was about 66% in Components, Telecom and Multimedia Equipment and in Telecom Services (declining by 4 percentage points since 2005), 64% in Measurement Instruments and in Computer Services and Software, and only 50% in IT Equipment. Intensity measured as total R&D personnel/employment would thus lower the figure for Telecom Services, and further increase it for IT Equipment.

4.4 The R&D intensity of the ICT sub-sectors from an international perspective

When analysing the ICT sub-sectors from an international perspective, 79 we will look first at the

perspective, 7 9 we will look first at the Figure 4-3: ICT sub-sector R&D intensities (BERD/VA

Figure 4-3: ICT sub-sector R&D intensities (BERD/VA in 2007)

4-3: ICT sub-sector R&D intensities (BERD/VA in 2007) Source: JRC-IPTS based on data from Eurostat, OECD,

Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS.

78 The different R&D intensity ratios used in this report and their specific features are discussed in Annex 2.

79 The sectoral disaggregation presented in this chapter does not include data for Canada and Japan due to the unavailability of comparable data at this level of disaggregation.

The 2010 report on R&D in ICT in the European Union

R&D intensity (BERD/VA) of each of them, before gauging their relative economic importance (VA/GDP) in the next section. Figure 4-3 shows that the overall lower R&D intensity of the ICT sector in the EU relative to the US is reflected in all the sub-sectors, except the Telecom Services.

The comparative analysis of R&D intensities reveals different patterns of R&D specialisation. The EU’s highest R&D intensity is in Components,Telecom and Multimedia Equipment, at the same value as Korea. The US ICT manufacturing sector seems the less specialised in terms of R&D investments/value added. From the countries in our sample, the fast growing Computer Services and Software sector is most R&D intensive in Korea and US.

4.5 The weight of the ICT sub-sectors from an international perspective

As shown in Table 3-2, the relative economic weight of the ICT sector (ICT VA/GDP) is smaller

in the EU than in either Japan or the US. Taiwan and Korea have an even higher specialisation in ICT production. Looking at the same indicator (VA/GDP) by sub-sector, it is striking that the structure of the ICT sector is fairly similar in the EU and the US, but very different in Japan, Korea or Taiwan (see Figure 4-4). The Asian countries have

a comparatively much bigger ICT manufacturing

sector. Japan’s IT Equipment sector relative to GDP

is five times bigger than the EU’s or the US’s and

has an R&D intensity almost double that of the US. It is three times bigger than the IT Equipment sector in the EU. An even clearer case of specialisation is Taiwan, which has the most R&D intensive ICT sector (in Components, Telecom and Media Equipment) with a share in GDP higher than the share of the entire ICT sector in EU. This preponderance of ICT manufacturing in the Asian countries explains to a large degree why their overall ICT R&D intensity is higher than that of the EU or the US as shown in the previous section

(Figure 4-3), given the much higher R&D intensity of ICT manufacturing than of ICT services.

R&D intensity of ICT manufacturing than of ICT services. Figure 4-4: Economic weight of the ICT

Figure 4-4: Economic weight of the ICT sub-sectors % of sub-sector’s value added in GDP, 2007

ICT sub-sectors % of sub-sector’s value added in GDP, 2007 47 Source: JRC-IPTS based on data
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4 R&D in ICT by ICT sub-sector

Contrary to the case of Japan, the higher R&D intensity of the ICT sector in the US does not seem to be related to a much stronger concentration in R&D-intensive sub-sectors. Each sub-sector is a bit larger, as a share of GDP, in the US than in the EU, but represents a fairly similar share of the overall ICT sector. The major role is played by the R&D intensities at sub-sectoral level.

The lower R&D intensity in the EU than in the US does not necessarily mean that individual EU companies in these sub-sectors invest less in R&D than their US competitors. Other factors play an important role, for example the quasi- absence of large international EU companies in these sub-sectors developing a global activity, as compared to the US competitors. This question is again documented at the end of Chapter 6 (Sections 6.3 and 6.4) but it will require further analysis.

4.6 Conclusions

In the ICT sector, services account for the lion’s share of value added and employment. The majority of R&D spending takes place, however, in manufacturing, although most BERD growth is accounted for by Computer Services and Software, which is also the only ICT sub-sector with growing R&D employment.

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48

BERD intensity in the EU is less than half as high than in the US in ICT and all its sub-sectors but the Measurement Instruments (where the R&D intensity of the corresponding EU sector is two thirds of the EU one) and Telecom Services, sector in which the EU shows an intensity double than the US The difference is biggest in IT Equipment, which is, however, a small sub-sector, while the difference in Computer Services and Software has the largest weight due to the size of the sub-sector. Japan’s higher overall ICT BERD intensity is due to its highly intensive ICT manufacturing sector, which in relative terms (as share in GDP), is twice as large as it is in the US and nearly three times the size of EU ICT manufacturing As regards ICT services, however, the EU’s BERD intensity is higher than Japan’s in Computer Services and Software, but lower in Telecommunications.

Sustained growth in the EU Computer Services and Software sub-sector observed in recent years may indicate that this sub-sector could be a real asset for future development of the EU ICT sector. However, in an international perspective it is worth noticing that even countries with a pronounced specialisation in Manufacturing as Taiwan and Korea have higher R&D intensity in the Computer and Services Sectors. To confirm the potential of EU in the Software area, further investigation is required, and needs to range from issues on industrial organisation in some of the non-EU countries to statistical procedures and coverage.

The 2010 report on R&D in ICT in the European Union

5 R&D in the ICT sector by EU Member State (ICT BERD, ICT GBAORD)The 2010 report on R&D in ICT in the European Union 5.1 National shares in ICT

5.1 National shares in ICT BERD

Within the EU, ICT sector BERD is heavily dominated by some of the largest economies, i.e. Germany, France and the UK (which together cover more than half of the total EU ICT BERD), followed by Sweden, Finland and Italy. When compared with the 2004-2005 period, the results for 2006-2007 show changes in national shares in ICT BERD than can be less attributed to price convergence than before. The shares in the EU of the three biggest investors taken together slightly increased between 2005 and 2007 (by 1%) but this is almost entirely due to a surge in R&D investment in the UK Telecom sector. In fact, both France and Germany decreased

in share, but this was due to faster growth in the rest of the EU, compared with their steady, but moderate, growth in the R&D of their ICT sectors. The significant increase of Spain’s and Portugal’s shares in total EU BERD is explained by the dynamics in specific sectors: the Computer Services and Software sub-sector in Spain (with a growth of over 50% in real terms in BERD), the Portuguese Telecom Services (almost 7-fold growth) and the Portuguese Computer Services sector (almost 4-fold growth). The decline in the share of Austrian ICT BERD in total is explained by a sudden drop of R&D investment in the Multimedia and Telecom Equipment sector. EU15

Member States 80 contributed 97.5% of the ICT business R&D expenditures and the new Member

Figure 5-1: Distribution of ICT BERD shares in EU countries % of total EU ICT BERD, 2007 (Total EU BERD = € 34.1 Bill PPP) 34.1 Bill PPP)

total EU ICT BERD, 2007 (Total EU BERD = € 34.1 Bill PPP) Source: JRC-IPTS based

Source: JRC-IPTS based on data from Eurostat, at Purchasing Power Parities (PPP).

80 EU15 Member States refers to those countries that were already EU Member States before 1 May, 2004.

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5 R&D in the ICT sector by EU Member State (ICT BERD, ICT GBAORD)

States (EU-12 81 ) contributed only 2.49% (see Figure 5-1). With the exception of the Czech Republic, the bulk of increase of ICT sector R&D in the new Member States is also to be found in the services sectors, and particularly in Computer Services and Software. In fact, services sectors in the new Member States perform more than half of the total national ICT R&D, whereas in the EU15, the same share is below 40%. The smooth evolution of the EU as a whole hides quite interesting structural volatility which suggests relocation and specialisation and also catching up, especially in the services sectors.

As Figure 5-2 shows, not surprisingly the Nordic states (Finland, Sweden and Denmark) invest the highest amount in ICT BERD in relation to the size of their economies. In particular, Sweden and Finland have a much higher figure than the rest of the Member States. However, while Finland has an outstanding ICT BERD intensity, its non-ICT BERD intensity is close to the EU average. In Sweden, high ICT-sector contribution is accompanied by the highest non-ICT BERD intensity of all the Member States. For Sweden, ICT contributes to a general excellence in BERD intensity. Country size also plays a role: smaller countries cannot broaden the range of their R&D investment very much as, quite often, their industries are also narrowly specialised.

Methodological note

This report uses purchasing-power parities (PPP) rather than current exchange rates, also for countries inside the Eurozone, in order to adjust for differences in price levels. 82 As a result, the Nordic countries Sweden, Finland and Denmark, which have high price levels, have a lower share than they would under current exchange rates, whilst Spain, Germany and the new Member States have higher shares.

5.2 The contribution of ICT to total BERD intensity by Member State

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50

This section looks at the contribution of ICT BERD intensity (ICT BERD/GDP) to total economy BERD intensity (BERD/GDP), by EU Member States. The contribution of ICT BERD intensity (ICT BERD/ GDP) to total BERD intensity (BERD/GDP) depends on the size of the ICT sector, which can be measured as ICT value added/GDP, and on the R&D intensity of the ICT sector which can be measured as ICT BERD/ICT value added. This contribution also varies depending on the composition of the ICT sector in each Member State.

81 EU12 Member States refers to those countries that have become Member States of the EU since 1 May, 2004. 82 The JRC-IPTS 2008 Reference Report “Mapping R&D Investment by the European ICT Sector” (Lindmark et al., 2008) uses current exchange rates for the 2004 data. Data are therefore not entirely comparable with this report.

The Nordic states are followed by most of North-western Europe. For these countries, ICT BERD constitutes a smaller share of their total BERD intensity. Italy, Spain, Portugal and Greece combine low ICT BERD intensity with low BERD intensity for the rest of their economies. Most of the new Member States combine extremely low ICT BERD intensity with low BERD intensity for the rest of their economies. The overall picture is one of decreasing ICT BERD intensity contribution as one moves from North to South and from West to East. However, some of the recent EU Member States like Estonia, Malta, the Czech Republic and Slovenia are fast improving their performance. Compared with the situation in 2005, Romania also registered remarkable progress, due to an explosive increase in R&D investments of companies in the Computer Services and Software sector (almost 20-fold real growth between 2005 and 2007).

Figure 5-2: Contribution of ICT sector to total BERD intensity (BERD/GDP) by Member State –
Figure 5-2:
Contribution of ICT sector to total BERD intensity (BERD/GDP) by Member State – EU, 2007
The 2010 report on R&D in ICT in the European Union

Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS and national statistics.

5.3 The weight of the ICT sector in the economy by Member State

This section compares the size (or ‘weight’) of the ICT sector in the national economies of the 27 EU Member States, and provides a breakdown per ICT sub-sector. Figure 5-3 shows that the ICT sector has the largest share of the economy in Finland and the lowest in Cyprus. Figure 5-3 also shows that the ICT sector in Finland is heavily dependent upon the Components, Telecom and Multimedia Equipment sub-sector, while in Sweden the ICT sector has a more balanced structure.This confirms the previously identified structural differences between Finland and Sweden. It also shows that Finland, Ireland and Malta are specialised in the production of ICT. On the other hand, in other small countries where the ICT sector makes a relatively higher contribution to the total BERD intensity as Estonia, Greece and Cyprus, this does not seem to be the case.

Specialisation does not necessarily mean high R&D intensity. Countries with a large ICT manufacturing sector, especially in the Components, Telecom and Multimedia Equipment industries, are more likely to have ICT sectors that contribute significantly to total BERD intensity. The chart above indicates that the ICT sectors in Finland, Malta, Hungary and, to a lesser extent, Sweden and Austria could be expected to make high contributions. Austria reduced its R&D investment in Components, Telecom and Multimedia Equipment sector to half between 2005 and 2007 and consequently the contribution of its ICT sector to the total economy R&D intensity declined. Malta and Hungary do not show a strong ICT contribution to total BERD intensity, reflecting the orientation of their ICT sector towards assembly and manufacturing, rather than innovation.

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5 R&D in the ICT sector by EU Member State (ICT BERD, ICT GBAORD)

in the ICT sector by EU Member State (ICT BERD, ICT GBAORD) Figure 5-3: Weight of

Figure 5-3:

Weight of the ICT sector in the economy of EU countries ICT VA / GDP, 2007

ICT sector in the economy of EU countries ICT VA / GDP, 2007 Source: JRC-IPTS based

Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS and national statistics.

5.4 Change in the weight of the ICT sector in the economy by Member State

A discussion on changes in the weight of the ICT sector in national economies must obviously take into account the changes that occurred in the sizes of the national economies themselves. Figure 5-4 indicates that national trends regarding the dynamics of the ICT sector (also taking into account national economic performance dynamics) are very different in the 27 Member States.

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From 2002 to 2007, two of the three countries most heavily specialised in ICT, Finland and Ireland (as seen in Figure 5-3), saw significant decreases in the shares of the ICT sector in their economies (as measured by ICT value added/GDP, in percentage points). 83

83 Finland resumed strong growth in 2006 and 2007 in Components, Multimedia and Telecom Equipment and owes the reversal of the trend observed in the previous report to Nokia’s performance.

In Finland, Ireland, and also Lithuania, Latvia, Greece, Cyprus, Austria and Italy, this decrease stemmed from a faster growth in the rest of the economy. Most importantly, this remains true for the EU as a whole. In fact, very few Member States saw increases in ICT value added that were more rapid than in total GDP, with Germany and Denmark as the only important exceptions. Of the New Member States, only Slovakia and Bulgaria saw the growth of their ICT sectors outpace the growth of GDP. It is difficult to assess the true significance of this observation. It is reasonable to expect that the EU entered a phase of technology diffusion, when the rest of the sectors enjoy ICT-enabled growth. It might also be the case that the evolution of the EU is a part of wider international specialisation. The share of value added produced by the ICT sectors continues to grow in the US and remains rather stable in

Figure 5-4: Average yearly change in GDP, in the value added of the ICT sector
Figure 5-4:
Average yearly change in GDP, in the value added of the ICT sector and in the weight of the
ICT sector in the economy of EU countries, 2007-2002
The 2010 report on R&D in ICT in the European Union

Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS and national statistics. Note: data for Malta covers the period 2004-2007.

other technologically advanced countries such as Japan, Korea or Taiwan. 84

5.5 The BERD intensity of the ICT sector by Member State

Looking at the BERD intensity 85 of the ICT sector (ICT BERD/ICT value added) by Member State (Figure 5-5) provides a very similar picture (in terms of Member State ranking) as that of the contribution of ICT BERD intensity to total BERD intensity (shown in Figure 5-2). Nordic Member States, led by Finland, are at the forefront, followed

84 Additionally, the growth rates given in these paragraphs are computed in nominal prices to avoid problems induced by the choice of price indices for the ICT sector. The figures should not be used to benchmark countries unless they have a similar inflation level. Alternatively, relative prices would need to be used to assess the growth rates in order to draw further conclusions.

by Austria and the bulk of north-western Member States. The UK and southern Member States are below the EU average. Southern Member States are at a comparable level with Estonia, Slovenia, the Czech Republic and Malta.

5.6 Change in the BERD intensity of the ICT sector by Member State

How has the contribution of ICT BERD intensity (as measured by ICT BERD/ICT value added) evolved in recent years in the EU Member States? How is this associated with the movements of the underlying variables, i.e., of ICT BERD and ICT value added? Did national dynamics differ? We will approach some of these issues further on.

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5 R&D in the ICT sector by EU Member State (ICT BERD, ICT GBAORD)

in the ICT sector by EU Member State (ICT BERD, ICT GBAORD) Figure 5-5: ICT BERD

Figure 5-5:

ICT BERD Intensities in EU countries, 2007 ICT BERD/ICT value added

Intensities in EU countries, 2007 ICT BERD/ICT value added Source: JRC-IPTS based on data from Eurostat,

Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS and national statistics.

From 2002 to 2007 for the EU as a whole, there is a slight decrease (yearly average of 0.08 percentage points) in ICT BERD intensity (ICT BERD as a share of ICT value added), as shown in graph A of Figure 5-6.

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The majority of the new Member States concentrate their R&D efforts on the ICT sectors. They have very high rates of growth in BERD and specifically in ICT BERD, but because they started from extremely low levels (see Graph A), these rates reflect the catching-up phase, as well as their choice for specialisation in ICT. In most cases, the rise in the ICT BERD is accompanied by a rise in the R&D intensity.

The dynamics of ICT R&D intensity for the two EU leaders, Finland and Sweden,

are extremely different, with an average yearly increase of ICT BERD intensity of 0.7 percentage points in Finland, and a decrease in Sweden of a yearly average of 0.4 percentage points. Nevertheless, they both have increasing shares of the ICT sector in total BERD, hence the best prospects for keeping the specialisation and EU leadership in ICT. In the case of Sweden, ICT BERD intensity dropped (see Graph A of Figure 5-6) in spite of an increase in BERD (Graph B), because of the important growth of the ICT sector (increased value added) outlined in Section 5.5. Similar dynamics happened in Germany.

Many of the New Member States saw an increase in ICT BERD intensity (Graph A) with a rise in both ICT BERD and value added (Graph B).

Figure 5-6: The dynamics ICT BERD intensities in the EU: A) ICT BERD as a
Figure 5-6:
The dynamics ICT BERD intensities in the EU:
A)
ICT BERD as a % of ICT value added in 2002 and yearly average change 2007-2002, in percentage points
The 2010 report on R&D in ICT in the European Union

B) BERD percentage changes (total and ICT sector, left scale), and changes in the share of ICT sectors in total BERD (percentage points – right scale), 2007-2002

in total BERD (percentage points – right scale), 2007-2002 55 Source: JRC-IPTS based on data from
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Source: JRC-IPTS based on data from Eurostat, OECD, EU KLEMS and national statistics. Percentage changes are computed from nominal values in Euros.

5 R&D in the ICT sector by EU Member State (ICT BERD, ICT GBAORD)

5.7 Government financing of ICT R&D by Member State

5.7.1 National shares in ICT GBAORD

ICT GBAORD measures government support to ICT-related R&D activities. 86 This section presents EU Member States data on ICT GBAORD or government ICT R&D financing: Government Budget Appropriations and Outlays in Research and Development related to ICT.

As observed in Section 5.1 with ICT BERD, ICT GBAORD in the EU is dominated by the largest economies (see Figure 5-7). Germany (21.8% of the total EU ICT GBAORD), Spain (19.8%) France

(15.2%), the UK (10.6%), and Italy (8.5%) represent together 76% of EU ICT GBAORD. As expected, governments invest in proportion to their financial capacities. The new Member States contribute only 4.7% of the total EU ICT GBAORD, which is a share far below their economic weight (almost 12% of the total EU GDP).

5.7.2 ICT GBAORD intensity by Member State (ICT GBAORD/GDP)

Observation of the share of GDP dedicated to public financing of ICT research (ICT GBAORD/GDP) can most clearly show the importance given to ICT research in national R&D policy priorities.

Figure 5-7: Distribution of ICT GBAORD in EU countries % of total EU ICT GBAORD,
Figure 5-7: Distribution of ICT GBAORD in EU countries % of total EU ICT GBAORD, calculated on PPP
values, 2007
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Source: Eurostat and JRC-IPTS calculations. Notes: ICT GBAORD data at Member State level have to be taken with even more caution than those presented at EU level in Section 3.2, because ICT GBAORD is obtained by applying estimated national shares in selected categories of the NABS 87 classification. 88 It is also important to note that GBAORD figures also include government financial support to ICT R&D that is performed in the business sector. Therefore, GBAORD figures should not be interpreted as corresponding to government financial support to ICT research performed by government establishments or universities. Only a share of that money will go to public research institutions.

86 For more information about GBAORD definition and methodologies, see Annex 6.

87 NABS: Nomenclature for the analysis and comparison of scientific programmes and budgets.

88 The methodologies used for elaborating the ICT GBAORD and the data presented in this section are fully described in the forthcoming IPTS Technical Report on “Public Expenditures in ICT R&D”.

Figure 5-8: Share of ICT GBAORD in GDP – EU Member States and the US,
Figure 5-8: Share of ICT GBAORD in GDP – EU Member States and the US, 2006 and 2007
The 2010 report on R&D in ICT in the European Union

Source: Eurostat and JRC-IPTS calculations.

Figure 5-8 shows data for 2006 and 2007.

Please note that the data for 2005, 2006 and

2007 is not directly comparable due to changes

in classifications and methodology at Eurostat and refinements of our estimation methodology as explained in the methodological annexes.

The position of Spain, which surpassed Sweden and is close to being on a par with the US, is mainly due to a substantial increase in its total GBAORD expenditures from €8.4 billion (PPP) in

2005 to €12.7 billion (PPP) in 2007. For ICT, this

result might appear surprising, especially when compared with the country’s much more modest position in ICT BERD. This is a consequence of Spain’s distribution of ICT funding and performance: the country holds some of the highest and increasing share of public support

in Industrial and productive systems R&D and in defence R&D (including R&D of ICT related nature), but this research is most likely to be performed by various manufacturing sectors rather than by the ICT sector itself. The data shows that Finland remains nevertheless a clear

leader, with a share of publicly-financed ICT research in GDP well above other Member States and even above the US. Sweden comes third among the EU countries. This Nordic lead clearly underlines one of the possible sources of success of these countries in the ICT domain. While it shows that ICT support is a public policy priority, it does not simply mean that direct government support to R&D in ICT companies is high. As a matter of fact, in both countries the share of ICT BERD financed by the government is among the lowest in EU. Finland is seen as a case of co- ordinated public policy to support SMEs and R&D in services, while in Sweden the defence budget covers an important share of ICT research (European Commission, (2008a) and (2008b)).

Among other countries that invest highly, Belgium and Portugal are worth highlighting. Though they are not among the high performers in terms of ICT BERD intensity, both their ICT GBAORD shares indicate public policies to support ICT R&D.

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5.8 Conclusions

EU R&D in the ICT sector is relatively concentrated in a few Member States: Germany, France and the UK together make up more than 55% of the EU ICT BERD. Sweden, Finland and Italy add another 20%. From the employment data, it is remarkable that the UK – and Spain – have oriented their research much more towards ICT services than France, Italy, and especially Germany.

BERD intensity of the ICT sector (ICT BERD/ ICT Value Added) remains highest in the Nordic countries and north western Member States, and lowest in the southern and new Member States. Finland and Sweden lead -again- a group of seven Member States that are above the EU average and that include Denmark and Austria, in third and fourth position respectively. The development from 2002 to 2007 was very different within the groups of countries. For example, Finland’s already high BERD intensity further increased whereas Sweden’s decreased. In Sweden, however, this decrease is not necessarily a negative signal, since it is due to the important growth of the size of the ICT sector (i.e., to an increase in ICT value added). Some new Member States have seen considerable increases (Estonia, Czech Republic, and in the last years of the interval, Romania and Bulgaria), others have experienced drops (Slovenia, Slovakia).

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ICT GBAORD is distributed around Europe very similarly–but not exactly- to ICT BERD, with Italy, Spain and the New Member States as a whole showing higher shares of ICT GBAORD than ICT BERD, and Sweden, Finland and UK showing much lower shares in ICT GBAORD than in ICT BERD. The five largest EU economies represent 76% of EU ICT GBAORD, with Germany, France and the Spain contributing 57% of ICT GBAORD and UK and Italy adding another almost 20%. The Netherlands, Finland, Sweden, and Belgium add another 13%.

Finland, Spain and Sweden lead in ICT GBAORD intensity (ICT GBAORD/GDP). These three countries come first in a group of six Member States that are above the EU average. Finland is above the US in ICT GBAORD intensity, and in share of ICT GBAORD in total national GBAORD (at a level that is more than twice the EU average).

The share of the ICT sector in national economies remains much more important than the EU average in Finland, Malta, Hungary and Sweden, where this is due to large Semiconductor and Telecom Equipment industries; and in Ireland, where the IT Equipment sub-sector is strong. However, with the exception of Hungary and Sweden, ICT sector importance had the strongest decrease in the more specialised countries, including Finland, and Ireland. This indicates a possible reduction in structural disparities.

The 2010 report on R&D in ICT in the European Union

The 2010 report on R&D in ICT in the European Union 6 ICT sector company R&D

6 ICT sector company R&D

The analysis in this chapter is based on company data from the 2008 EU industrial R&D Scoreboard 89 (henceforth the Scoreboard) in which R&D investment data, and economic and financial data from the last four financial years are presented for the 1,000 largest EU and 1,000 largest non-EU R&D investors in 2007. According to JRC-IPTS estimates, the Scoreboard covers about 80% of all company R&D investments worldwide. From the Scoreboard, we have extracted the sub- set of ICT sector companies, which we refer to in this chapter as ICT Scoreboard.

This chapter is an update and extension of a similar chapter in the 2009 report on R&D in ICT in the EU (Turlea et al., 2009). It is mainly based on data from 2007, instead of 2006 as was the case in the 2009 report. In addition to the section analysing Computer Services and Software in the previous report, two further sections have been added, on IT Components and on Telecom Equipment. Company demographics (i.e., age of companies) of almost one hundred major R&D investing companies have also been researched and analysed.

The data presented in this chapter is not directly compatible with the data used in the previous chapters. The Scoreboard attributes each company’s total R&D investment to the country in which the company has its registered headquarters and to one single sub-sector (ICB 90 and NACE class), regardless of whether some of the performed R&D concerns products or services related to sectors other than the one the company is attributed to. ‘R&D investment’ in the Scoreboard is the investment funded by the companies themselves, and is subject to

89 European Commission (2008d).

90 The Industry Classification Benchmark - see http:/